4 ms·

I assume the collective capital of the Robinhood/WSB crowd is not particularly massive compared to what many large fund managers have at their disposal (not to

by Tycho 6y ago

I assume the collective capital of the Robinhood/WSB crowd is not particularly massive compared to what many large fund managers have at their disposal (not to mention the leverage they have access to). If a bunch of Redditors can squeeze a large cap stock just because it has a high level of short interest, why don't institutional players use this strategy?

mywittyname 6y ago
> why don't institutional players use this strategy? They do. It is a very high risk endeavor though and missing the mark could lead to bankruptcy and success could mean action from the SEC. But catching someone in a short squeeze is pretty damn profitable. Part of the success here probably has to do with underestimating the influence of wsb. This isn't the first time they've taken down short sellers (Telsa), but it's the most high profile time.
- Miner49er 6y ago
  Yes, two examples: Porsche in 2008 with Volkswagen and Martin Shkreli with KBIO in 2015. Neither faced any significant legal consequences and both made a huge return. https://www.marketwatch.com/story/kalobios-short-sellers-facing-squeeze-as-ceo-shkreli-says-will-no-longer-lend-stock-2015-11-27 https://www.marketwatch.com/story/kalobios-short-sellers-fac...
  - elliekelly 6y ago
    The only reason Shkreli got away with it was because the DOJ brought (unrelated) criminal charges. If the DOJ hadn’t stepped in the SEC absolutely would have. The VW situation happened on a wildly different Wall Street and under a wildly different SEC. Things have changed since 2008 and pursuing that strategy today would be significantly more risky from a regulatory perspective. The SEC sent a clear message with Phil Falcone.
- ssharp 6y ago
  It's not easy to generate the kind of momentum you need to pull off something like what's been happening. WSB has been pushing GME for months. Then things got heated with them and the major shorts, it brought more attention to it, and GME shot up quite a bit. That amplified the story even more, which brought it more demand for GME. That cycle has just continued, building more and more interest each time. I don't believe the story has come close to reaching its peak yet either. I suspect there will start to be some major headlines still this week, which will bring in more speculative interest. Then, at some point, the story fizzles. The gains stop and the price will collapse. It's going to be an interesting week or so watching this all play out.
elliekelly 6y ago
Martin Shkreli famously did this with a tweet. So did Phil Falcone. One is in prison (for unrelated securities fraud) and the other was permanently barred from the investment industry by the SEC for securities fraud and market manipulation. Falcone was motivated by equal parts profit and revenge, though, so his case was particularly egregious. Where is the line is between market manipulation and just... the market? I couldn't tell you. One or a few people working in coordination to create a short squeeze and they're definitely going to get a call from the SEC. A few thousand Redditors working in coordination to create a short squeeze? I guess we'll find out what the SEC thinks.
- hn_throwaway_99 6y ago
  My understanding when it comes to market manipulation based on speech is there must be some element of deceit. I.e. saying "We should all buy GameStop because they'll have better technology than Netflix" is a lie, and if people believed it would be classic pump-and-dump market manipulation. Saying "We should all buy GameStop to engineer the short squeeze of the century and fuck over greedy hedge funds" is completely transparent, truthful, and legal.
  - elliekelly 6y ago
    > Saying "We should all buy GameStop to engineer the short squeeze of the century and fuck over greedy hedge funds" is completely transparent, truthful, and legal. To be clear I’m not saying it’s definitely illegal because I’m really not sure and I think you could make the argument either way. But I absolutely would not characterize it as “completely transparent, truthful, and legal”. I think the SEC could at least make the argument that WSB redditors collectively were essentially activist investors acting in concert and failed to make the relevant disclosures to put the market on notice. And, in the eyes of federal securities laws, failing to disclose material information is akin to deceit. I‘m not saying the SEC will (or even should) make that argument but I am saying that this is absolutely not nearly as cut and dry as you think. Not by a long shot.
    - hn_throwaway_99 6y ago

by Tycho 6y ago

mywittyname 6y ago

> why don't institutional players use this strategy? They do. It is a very high risk endeavor though and missing the mark could lead to bankruptcy and success could mean action from the SEC. But catching someone in a short squeeze is pretty damn profitable. Part of the success here probably has to do with underestimating the influence of wsb. This isn't the first time they've taken down short sellers (Telsa), but it's the most high profile time.

Miner49er 6y ago
Yes, two examples: Porsche in 2008 with Volkswagen and Martin Shkreli with KBIO in 2015. Neither faced any significant legal consequences and both made a huge return. https://www.marketwatch.com/story/kalobios-short-sellers-facing-squeeze-as-ceo-shkreli-says-will-no-longer-lend-stock-2015-11-27 https://www.marketwatch.com/story/kalobios-short-sellers-fac...
- elliekelly 6y ago
  The only reason Shkreli got away with it was because the DOJ brought (unrelated) criminal charges. If the DOJ hadn’t stepped in the SEC absolutely would have. The VW situation happened on a wildly different Wall Street and under a wildly different SEC. Things have changed since 2008 and pursuing that strategy today would be significantly more risky from a regulatory perspective. The SEC sent a clear message with Phil Falcone.
ssharp 6y ago
It's not easy to generate the kind of momentum you need to pull off something like what's been happening. WSB has been pushing GME for months. Then things got heated with them and the major shorts, it brought more attention to it, and GME shot up quite a bit. That amplified the story even more, which brought it more demand for GME. That cycle has just continued, building more and more interest each time. I don't believe the story has come close to reaching its peak yet either. I suspect there will start to be some major headlines still this week, which will bring in more speculative interest. Then, at some point, the story fizzles. The gains stop and the price will collapse. It's going to be an interesting week or so watching this all play out.

elliekelly 6y ago

Martin Shkreli famously did this with a tweet. So did Phil Falcone. One is in prison (for unrelated securities fraud) and the other was permanently barred from the investment industry by the SEC for securities fraud and market manipulation. Falcone was motivated by equal parts profit and revenge, though, so his case was particularly egregious. Where is the line is between market manipulation and just... the market? I couldn't tell you. One or a few people working in coordination to create a short squeeze and they're definitely going to get a call from the SEC. A few thousand Redditors working in coordination to create a short squeeze? I guess we'll find out what the SEC thinks.

hn_throwaway_99 6y ago
My understanding when it comes to market manipulation based on speech is there must be some element of deceit. I.e. saying "We should all buy GameStop because they'll have better technology than Netflix" is a lie, and if people believed it would be classic pump-and-dump market manipulation. Saying "We should all buy GameStop to engineer the short squeeze of the century and fuck over greedy hedge funds" is completely transparent, truthful, and legal.
- elliekelly 6y ago
  > Saying "We should all buy GameStop to engineer the short squeeze of the century and fuck over greedy hedge funds" is completely transparent, truthful, and legal. To be clear I’m not saying it’s definitely illegal because I’m really not sure and I think you could make the argument either way. But I absolutely would not characterize it as “completely transparent, truthful, and legal”. I think the SEC could at least make the argument that WSB redditors collectively were essentially activist investors acting in concert and failed to make the relevant disclosures to put the market on notice. And, in the eyes of federal securities laws, failing to disclose material information is akin to deceit. I‘m not saying the SEC will (or even should) make that argument but I am saying that this is absolutely not nearly as cut and dry as you think. Not by a long shot.
  - hn_throwaway_99 6y ago