GameStop

Aretnap

The usual arguments against short-selling are well-rehearsed:

(1) You are betting against the natural progression of the market - shares are generally more likely to rise than to fall

(2) Even if you have accurately identified an overvalued company, the market can remain irrational for a surprisingly long time

(3) There is no limit to your potential losses

But it seems that now we might have to add another one:

(4) S***posters on Reddit might decide to bankrupt you for lols

https://www.theguardian.com/business/2021/jan/27/gamestop-stock-market-retail-wall-street

https://www.google.com/search?client=firefox-b-d&q=Hedge+fund+Melvin+closes+bet+against+GameStop+after+Reddit+trader+onslaught

I'm not sure whether random dweebs on interweb forums causing chaos in the financial markets is a positive development in the long term... but in the short term at least it would take a heart of stone not to laugh.

Ciprico

Surely these aggressive hedge funds are a negative force. So they lose a few billion now and again. Who cares...

AlanP_2

123mat123 said:

Surely these aggressive hedge funds are a negative force. So they lose a few billion now and again. Who cares...

Their investors maybe? You know, the likes of pension funds etc.

onomatopoeia99

Aretnap said:

I'm not sure whether random dweebs on interweb forums causing chaos in the financial markets is a positive development in the long term... but in the short term at least it would take a heart of stone not to laugh.

I kind of think it is.  Shorting is gambling, even more so than trading bitcoin because unlike with bitcoin where the loss is limited to your stake, the potential loss with shorting is unlimited, yet it's not called out on here with anything like the same ferocity because it's done by huge hedge funds run by people that call themselves investment experts that lend it an air of respectability.   

Quite happy to see the so-called experts given a proverbial bloody nose by a bunch of "dweebs" on an internet forum from time to time.

ChilliBob

Surely in time the market will correct its self and the price return to something more reflective of it value?

At which point Reddit users are loosing their own money. Yes hedge funds will loose due to shorting, but.. Its not their money anyway. (Ironically perhaps the Reddit users, or their families pension funds?!) 

YellowStarling

ChilliBob said:

Surely in time the market will correct its self and the price return to something more reflective of it value?

At which point Reddit users are loosing their own money. Yes hedge funds will loose due to shorting, but.. Its not their money anyway. (Ironically perhaps the Reddit users, or their families pension funds?!) 

I'm sure it will too.  However, the opportunity for it to happen is the bigger problem, as it can do (and possibly already is re: AMC, Koss, Express, Sundial, RDHL, etc.) without any sort of reform.  In a landscape of ever-increasing accessibility of low-cost trading and information by Joanne Averages (a positive, in isolation), awareness of overleveraged short positions (in the case of Melvin Capital, my understanding is that they had/have shorted more shares of GameStop than were/are available to buy to exit the position) that then leads to 'campaign' investing based on the opportunity to squeeze these shorters, purely on the opportunity to squeeze (rather than invest on the perceived positive fundamentals of the company).

In other words, ironically both sides probably agree on the (poor, relative to current valuations) prospects of these companies, but are driving the value higher in a clash created out of the ability to over-short, declare these positions, and then in doing so advertise the opportunity to be squeezed.  Investing/trading in this way, almost to soley exploit a loophole in shorting, is at odds with the spirit of investing (or even shorting) based purely on fundamentals or sentiment about prospects.  And this feels a threat to faith and stability in the markets to me (as well as putting latecomer retail traders enticed by the 'campaign' at risk of holding a bag they cannot really afford), unless I'm overreacting.  Maybe a cap on the degree you can short (to avoid an imbalance in short:outstanding ratios) would do more to discourage squeezing? 

ChilliBob

What a time to be an employee shareholder, if they exist still! 

[Deleted User]

Aretnap said:

The usual arguments against short-selling are well-rehearsed:

(1) You are betting against the natural progression of the market - shares are generally more likely to rise than to fall

(2) Even if you have accurately identified an overvalued company, the market can remain irrational for a surprisingly long time

(3) There is no limit to your potential losses

But it seems that now we might have to add another one:

(4) S***posters on Reddit might decide to bankrupt you for lols

https://www.theguardian.com/business/2021/jan/27/gamestop-stock-market-retail-wall-street

https://www.google.com/search?client=firefox-b-d&q=Hedge+fund+Melvin+closes+bet+against+GameStop+after+Reddit+trader+onslaught

I'm not sure whether random dweebs on interweb forums causing chaos in the financial markets is a positive development in the long term... but in the short term at least it would take a heart of stone not to laugh.

So what are you, if not a random dweeb on an interweb forum? Why resort to name calling just because some guys beat the hedge funds and made a nice profit?

alanwsg

From 'The register' ....

https://www.theregister.com/2021/01/28/gamestop_reddit_madness/

steampowered

The Hedge Funds who have lost money here were engaging in extremely risk, speculative investment. They knew exactly what they were doing.

When you play that game, sometimes you are going to lose! All the more power to the fact that they got beaten by reddit users rather than by another hedge fund!

Grumpy_chap

Is the problem deeper than jus this one company?
The hedge funds investors were taking short options on the shop as they identified financial stress and the share value not yet reflecting that.  The Reddit investors haven't done anything to change the underlying position of the company.

BUT, the problem is the way the pensions funds / hedge funds / expert investors take the fee.  Fee is a percentage of fund value, so the professional investors can take massive risks but loose little if the gamble fails to pay off.  They get 0.5% of your £1m fund, so £50k.  If the investor does well, the fund increases to £1.1m - investor gets £55k.  If the investor fouls, then they get 0.5% of the remaining £900k, so £45k.  Big difference to the fund owner, little difference to the professional investor.

The more appropriate reward for the professional investors looking after the funds would be to introduce some mechanism by which they a rewarded a share for growth but receive nowt for losses.  That would not apply to individual trades as the fund fees are only applied either monthly or annually.