Has anyone been following the kerfuffle with www.reddit.com/r/WallStreetBets and Gamestop stocks?
https://www.wsj.com/livecoverage/stock-market-gamestop-amc
They started a big trend on buying Gamestop stock (GME), which has caused a huge bubble. Because Gamestop isn't very healthy, they've been shorted heavily in the pro investor world, everyone betting the stock would go down. This big bubble has caused large funds to lose piles of money on the short positions, while tendie-crunching Redditors reap the rewards. Now everyone's running in circles and panicking.
Now, the trading app Robinhood has restricted all purchases of GME stock but still allows sales. People are furious, and AOC, Donald Trump Jr, and Ted Cruz all publicly agreed that this is sketchy and needs to be investigated. You know you messed up when you've got AOC and Trump Jr on a side against you.
https://finance.yahoo.com/news/this-is-unacceptable-aoc-and-others-side-with-retail-investors-slam-robinhood-and-wall-street-amid-game-stop-mania-171906758.html
Meme Magic lives on! :crazy2:
I was amazed when I saw a story about this on the New York Times.
This is a wonderful example of "The Greater Fool Theorem" from Finance. [This is not my creative language - it is what it is called in the textbooks].
Briefly, no investment is ever foolish if you get a greater fool than you to buy it for more than you paid for it.
This is a classic bubble (you might want to read Great Popular Delusions and the Madness of Crowds for a history - these have been carefully recorded going back to the 1600s). I'm sure the people who bought it cheap and sold it dear made money. I'm also sure that the path to riches is not to buy grossly overvalued items in hopes a greater fool will come along and buy it for more than you paid for it.
The app (and the stock exchanges) are probably reacting to pressure from Janet Yellen who was approved by the Senate for Treasury Secretary. Various financial regulators try to find really severe bubbles and limit their damage.
The "logic" of momentum trading applies equally well (or horribly) to Ponzi schemes. Herd buying of a stock is not illegal (unlike Ponzi schemes), but they still turn out very badly for the vast majority who get caught when the bubble crashes.
^ Well put and I was hoping you'd weigh in. There's currently a huge "hold the line" hivemind on Reddit with people seemingly convinced that the stocks will continue increasing indefinitely.
I'm going to head on over to Reddit with my tulip bulbs.
It's fine when the deep pocket hedge fund assholes burn people but when the little guys give them a taste of their own medicine it's suddenly not okay. I have no sympathy for the billionaires getting burned with their own tricks.
Quote from: Ubercat on January 28, 2021, 06:04:30 PM
It's fine when the deep pocket hedge fund assholes burn people but when the little guys give them a taste of their own medicine it's suddenly not okay. I have no sympathy for the billionaires getting burned with their own tricks.
I really don't care who gets burned - but bubbles end very badly. I don't care about hedge funds or the like - I've never invested with them.
I've not read a detailed story in the Wall St. Journal about this yet. But I listened to a couple of stories on the radio that sounded weird. I might get time to access my subscription online this weekend.
There are volatility checks on the market due to the "flash crash" of years ago that can automatically close trading on an individual stock for a while to ensure the market clears. But those are a close of all trading. There are even volatility checks for entire markets - but again this is not what happened.
Here, it looks like some of the stock trading apps (my warning - stay away from them) did not allow users to buy Gamestop and perhaps a couple of other stocks - but you could sell them. I have never, ever heard of that before. The individual app (Robinhood maybe?) came out today and said they had to get additional financing to ensure they could cover the purchases - but that also does not make sense to me. Usually they only lock individuals and that for margin calls (including forced sales) - but that is almost always on an option play (put, call, short, etc...). In everything I've ever seen, you had to either have money in your account or an established credit line to do a trade of any type.
As someone who has read the financial press for 40 years - at least some of this acts like some of the facilitators in the market were playing favorites - which is a very big no no in publicly traded stocks. Big no no like massive fines and possible criminal charges. But again, some of this at least from radio news reports made no sense to me.
Still, this is a classic bubble and a lot of people are going to get burned. Some of the hedge funds that shorted some of these stocks have literally lost tens of billions of dollars which I care about not at all. When you start putting short term bets on stock movements, your losses can be incredible if the bet does not work out. Selling something you don't own (a short) has (rare), but unlimited risk if the stock takes off. I've never done any of these because I don't think I can time stock movements and the risk you take is absurd.
The Gamestop movements have been wild. On January 4 it was $17.25 per share.
On Jan. 27 it was $347.51. Jan 28 - $193.60. It closed Friday the 29th at $325.
During January, Gamestop's financial and business fundamentals were largely unchanged.
Some of the big short sellers lost tens of billions or more. If the people who bought it inexpensively got out - they made a lot of money. I think this is a bubble and whomever bought it at this massively inflated price will get burned - but as long as they find a "greater fool" they will make money. Until of course, we run out of fools with money. There always seems to be a finite supply of them.
Two of the biggest shareholders are Vanguard and Fidelity - both of whom run huge index funds. I'm guessing (it is a guess, I don't know their exact processes) that they neither bought nor sold that many shares in this stock during this ten day roller coaster. I know I own some tiny share of Gamestop since I own a lot of shares in very broad (and inexpensive maintenance fee) index funds. But you can also say that I own a tiny part of almost every publicly traded stock in the US.
This is what Vanguard's blog said about recent events: https://investornews.vanguard/when-stocks-get-ahead-of-fundamentals/
^ I heard one of the people who got in on it early turned $50k into $22m.
Quote from: al_infierno on January 30, 2021, 08:39:37 PM
^ I heard one of the people who got in on it early turned $50k into $22m.
Whomever claimed that did not make the trades this year unless they were playing the options market.
The low was !7.25. With $50,000 that is a maximum 2,899 shares rounding up a bit and not counting any transaction costs.
If they sold at the peak, that would be $1,007,431 in whole numbers which is a pile of money. But 1 million does not equal $22 million. The only way they could have possibly cleared $22 million was to have bought a bunch of call options before everything went nuts. That is possible, but most calls finish out of the money and you just flush your initial investment.
The lesson I re-learn every day is not to trust everything you read on the internet. :buck2:
NeoUnrealist did a good livestream on the event.
Some of the zoomers I work with were following the subredit since last summer and bought in to Gamestop and Blackberry. I wish I had but I just threw a bit of money into Dogecoin for the lulz instead.
The movement is dead for now, but I'm waiting for something interesting in 2022. But it's true, since 2016 memes have become a real deal not only on the internet. In fact, internet activities like that can affect every aspect of life, including politics and financial markets. The situation with GameStop proved it, but it seems like markets are ready for such type of chaos in the long run. I've read some analysis articles by the REDACTED and they described the reasons and the outcomes of the gamestop chaos this year. Well, probably it wasn't really the smart move from some traders.
Yeah, I agree. I am very happy that I have nothing to do with GameStop, and didn't listen to my friends who advised me it. I felt it won't have a happy end from the beginning. However, I have tried instead REDACTED, which I think is the best invention ever, especially for beginners and for people who don't have time to run trades every day to have a maximum profit. They can do almost everything, from giving you a signal to place a trade, to placing and managing the trade for you.
I'm coming late to this party, but just wanted to chime in. As somebody who's worked in brokerages at the Fortune 1000, Fortune 500, and Fortune 100 levels, and as somebody who had friends running regulatory and compliance reporting on this...
A bunch of people who don't understand how the stock markets work thought they were sticking it to the man by buying a stock at 10x and then 20x what it was worth. With one or two exceptions of particularly stupid hedge fund managers, they were wrong. And they cost themselves TONS of money.
In theory, somebody can "short" a stock (i.e., sell it today based on a promise to buy it at a later date--at whatever the price is then--and deliver it). In practice, virtually none of the big players ever do this without putting various risk hedges in place to manage their downside. There were, in fact, a very small handful of firms who had done this. When the value of the stock exploded, one or two of them got badly screwed. Shame on them.
For the most part, none of the big players lost hardly any money on this. Aside from those one or two firms, the people who lost money were the ones who paid 20x too much for this.
Back in November/December 2021, I bought into a fracking company my brother in law is an executive VP (Engineering) in. The IPO for the stock 3 years ago was $10, I didn't buy because I feel IPO s are always over-rated. I bought in at $2 when the price of oil started to climb.
I look like a great investor with it hanging around the $4 mark now, but the truth of the matter is that I did it just so I could bust his britches as a stock holder. >:D
"Stock investments are a dish best served cold."
That is the quote, isn't it? :wow:
As with crypto currencies or other things, it is mathematically possible to make a killing in most markets. That said, "chasing performance" is seldom the best way to do it. If you want to, you can carve out a little bit of your money--think of it as play money--and invest that in whatever tickles your fancy.
The real trick to getting rich is to start saving a modest amount every month when you're real young. $200/month starting when you're 25 will earn you half a million by the time you're 65. Wait to start saving $200/month until you're 35, and at 65, you'll have less than half as much.