As we have been seeing for the past week the people have just revealed against the short seller policy and the way they oppress many companies to the kill. The stocks of companies such as Naked Brand, AMC Entertainment or Koss have been flying, having behind thousands of young investors with their government money (a money thought to run the economy, not the stock market).
For sure the biggest move has been in GameStop. For those of you eagering to throw money into the stock instead of reading, just a little summary: GameStop is the Blockbuster of games. So, it was quite clear that they were falling, probably heading to bankruptcy not because of the edge funds but because of the “streaming” mode. Nowadays you don't need to buy a hardware game, you can download and play legally as you can listen to music on Spotify or see films on Netflix.
The stock went from 2.57$ minimum to a whooping 483$ over a year, just in the last month it went from 20$ to 483$. Why this move? Have they invented the wheel in this Corona year? The answer is Reddit. While short sellers gather around this stock like vultures around a heart animal. Short sellers went up pilling up to the 97% of the stocks as loans for short selling. It was then that a group of Reddit enthusiasts started seeing this as unfair (it is really unfair) and decided to buy stocks to bring the price up. “It is not about the money, it is about sending a message”. Their purpose is to show that short selling could be harmful for all, that it should be more regulated and specially to make the greedy short sellers understand why greed is something bad.
But my question is: and after? For sure the easiest way to get out for the short seller hedge fund would be to file for bankruptcy protection, and explain after what has happened, probably pay a bill and be expelled from the stock market.
For the people buying now… well… even if “sending a message” is really interesting and powerful, the danger is with going out. Even with a good cause as showing Wall Street that individuals do count, greed will for sure appear. Most of the people are bragging about their winnings (if they sell) and recommending more people to join in. When the times comes this will have to fall, at least to normal levels, meaning that either they lose money (“sending a message”) or, probably some, will start selling soon before the moment come and will leave the other behind in a kind of: It is not about the money, it is about sending a message - but let me take the money. And… it would matter a lot… for sure the SEC will run behind the people that manipulated the market and profited the most (do you remember why Gordon Gekko was jailed in “Wall Street”, because of manipulation and greed).
Why this will for sure go down? Because the very same people buying the stock are the ones playing online and buying the latest device, a device that have nothing to do with the business model of GameStop. It is very much as if Tim Cook and in general Apple decide to invest heavily in jukeboxes because they see unfair that the business of jukeboxes fall. Yes, it maybe a good cause, but they are the ones (with iTunes) that have brought jukebox businesses to a stop. And in this case is very similar. The millenials investing heavily to "send a message" are the first one that changed from CDs to Spotify, from Blockbuster to Netflix, and to run towards streaming services and games.
GameStop has little chances of escaping bankruptcy unless they pivot (and fast) their business model. Something that they should have done a long time ago by investing in players, Youtube, Twitch, TikTok or the streaming services.
One thing is certain. The SEC should be actively monitoring manipulation, both for rising and for going down. Should mark a clear limit of stocks that could be shorted and ask shortseller for reasoning to short a stock. Short Sellers vultures are not only around old fashioned companies, they are also around new technologies, seeking them to fail. The USA is seeing worldwide as “the land of opportunity” and the place where innovation has no end, they should protect their biggest asset from the people willing to go back to the caves, and from greed.
If you are thinking about investing, be careful. The question is not if this will fall back to a normal price, but when. The moment will arrive unseen and unannounced, so risk only the money you are willing to use “to send a message” and not the money you need to buy bread.
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