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WSB has basically recreated a "boiler room", which is an ages old scam where a small group of insiders would encourage people to buy stock, drive them value up,

WSB has basically recreated a "boiler room", which is an ages old scam where a small group of insiders would encourage people to buy stock, drive them value up, and then the insiders dump the stock. The key insight here is that for every person selling the stock and making millions, somoene has to be buying. There's a narrative about short squeezes forcing a small number of hedge funds to buy stock, but in practice many of the people buying the stock at the inflated price are retail investors hoping to get rich quick. A few retail investors will get rich quick, but that money will come from the people who join the party late and can't get out before the price drops back to earth. The trading stops and laws that exist to prevent this kind of wild volatility are basically because for 90% of people, this is not good. By the time your parents read about this in the paper and log into their TD Ameritrade accounts to "invest", they'll be in that group of people left holding the bag.

kjakm 6y ago
This all reminds me of the crypto ICO's a few years back. Build a tonne of hype around something, get a vast number of people who don't really know what they're doing to put in their money, and then the big investors get out, tanking the price for everyone else. In all the talk of conspiracy around this I'm surprised nobody is discussing the possibility that larger investors are likely manipulating/hyping the WSB community. The WSB community is acting untouchable but I get the feeling in the end they'll be the ones losing their money.
- codetrotter 6y ago
  Exactly this. I went over to r/WSB earlier today to see what the fuzz was all about, and all of the posts there remind me exactly of the content that was being posted in cryptocurrency subreddits a few years ago. Posts about having bought high and intending to hold. To me when I see this I think, how many of these posts are people that are trying to hype up others to put money in, so that the people that are hyping the others can get out. And I think the answer is a lot. And the rest of them are people caught up in the hype. But the hype cannot last, it never does.
  - deleted 6y ago
    [deleted]
razius 6y ago
That's not true, WSB are not insiders. The information that they are trading on was public. Basically hedge funds promised to buy 140% of available GME stock which is impossible.
Tenoke 6y ago
It's not a pump and dump if there's a legitimate reason to think the stock will be worth more for reasons other than the pumping itself which there is due to the short squeeze.
dahdum 6y ago
In this case people buying stock weren't hoping on a greater fool to sell it to later. By a large margin, more shares were sold short by a handful of hedge funds than even exist. As the price rises the expectation was/is they are forced to buy back to cover at any price. It's entirely possible a majority of retail investors make a killing and a few large funds get liquidated. At least it was until the coordinated action to protect those hedge funds today.
- snowwrestler 6y ago
  These two thoughts are incompatible: - “We’re going to put these hedge funds into bankruptcy” - “These hedge funds will buy all our stocks at inflated prices” If the hedge funds can buy all the stock, they’re not at risk of going bankrupt. And if they are at risk of going bankrupt, they can’t buy all the stock at inflated prices. A lot of retail investors are going to lose money when this bubble pops. /r/wsb has not invented a new way for everyone to get free money.
  - tomp 6y ago
    The hedge fund(s) have billions of dollars of assets/investments. So they can buy a lot of stock and “shut down” (i.e. make -90% returns for their unfortunate investors) without actually going “bankrupt”.
  - bvirb 6y ago
    Interestingly I think they're not entirely incompatible. If the funds can't cover their positions they will attempt to get money from somewhere. This could be loans or selling ownership of the fund, probably to other funds as it looks like has already happened with some. Effectively being forced to put more money in. Fundamentally the funds made an extremely risky bet and the market is (or was at one point) seemingly reasonably and expectedly betting against it with a short squeeze. The new part is the social hype driving the squeeze via an army of retail investors. Agree some retail investors are inevitably going to be left with a net loss here, which will suck. But it was (and may still be) a reasonable play when viewing the market as a gambling platform (which the funds were doing by over-shorting). My hope is that the people claiming to be cashing out their 401k on GME are partaking in anonymous internet hyperbole to fuel the hype and the vast majority are gambling with a few bucks they can afford to gamble with because they can't do anything else right now.
tartoran 6y ago
Thats not the same narrative I see on reddit. People are okay with losing as long as the big sharks are hit hard. It seems like an emotional reaction not a boiler room
- dagmx 6y ago
  It can be both. You can use the emotional reaction to push the scenario the poster was talking about. Ultimately , to the instigators in a boiler room, it doesn't matter why others invest, as long as they do. Having a compelling underdog story serves them well.
doom2 6y ago
What's the difference between reddit users taking action on the advice of other reddit users and everyday folks taking action on the advice of CNBC talking heads? In both cases, someone is saying, "This security might be a good buy."
llampx 6y ago
This is categorically false.
- malwarebytess 6y ago
  Prove it.
  - llampx 6y ago
    Wikipedia to the rescue. https://en.wikipedia.org/wiki/Boiler_room_(business) https://en.wikipedia.org/wiki/Boiler_room_(business) Notably, public forums are not included as part of a boiler room scam.
sithlord 6y ago
its not really whats happening. Reddit has identified that there are more outstanding short shares than stocks. So in effect they are doing more of a blockade. Effectively, if buys continue, the hedge funds they will have to buy more shares than exist to get out of it, at a rediculous price.
tomp 6y ago
People were saying the same when Tesla was 350$. Some suckers (e.g. me) actually believed them.
castlecrasher2 6y ago
Do you not know the short-to-float context for GME? I suggest you read up on it; the retail movement isn't a pump-and-dump.
seth_davis 6y ago
jtmarlin.com says it all

kjakm 6y ago

This all reminds me of the crypto ICO's a few years back. Build a tonne of hype around something, get a vast number of people who don't really know what they're doing to put in their money, and then the big investors get out, tanking the price for everyone else. In all the talk of conspiracy around this I'm surprised nobody is discussing the possibility that larger investors are likely manipulating/hyping the WSB community. The WSB community is acting untouchable but I get the feeling in the end they'll be the ones losing their money.

codetrotter 6y ago
Exactly this. I went over to r/WSB earlier today to see what the fuzz was all about, and all of the posts there remind me exactly of the content that was being posted in cryptocurrency subreddits a few years ago. Posts about having bought high and intending to hold. To me when I see this I think, how many of these posts are people that are trying to hype up others to put money in, so that the people that are hyping the others can get out. And I think the answer is a lot. And the rest of them are people caught up in the hype. But the hype cannot last, it never does.
- deleted 6y ago
  [deleted]

razius 6y ago

That's not true, WSB are not insiders. The information that they are trading on was public. Basically hedge funds promised to buy 140% of available GME stock which is impossible.

Tenoke 6y ago

It's not a pump and dump if there's a legitimate reason to think the stock will be worth more for reasons other than the pumping itself which there is due to the short squeeze.

dahdum 6y ago

In this case people buying stock weren't hoping on a greater fool to sell it to later. By a large margin, more shares were sold short by a handful of hedge funds than even exist. As the price rises the expectation was/is they are forced to buy back to cover at any price. It's entirely possible a majority of retail investors make a killing and a few large funds get liquidated. At least it was until the coordinated action to protect those hedge funds today.

snowwrestler 6y ago
These two thoughts are incompatible: - “We’re going to put these hedge funds into bankruptcy” - “These hedge funds will buy all our stocks at inflated prices” If the hedge funds can buy all the stock, they’re not at risk of going bankrupt. And if they are at risk of going bankrupt, they can’t buy all the stock at inflated prices. A lot of retail investors are going to lose money when this bubble pops. /r/wsb has not invented a new way for everyone to get free money.
- tomp 6y ago
  The hedge fund(s) have billions of dollars of assets/investments. So they can buy a lot of stock and “shut down” (i.e. make -90% returns for their unfortunate investors) without actually going “bankrupt”.
- bvirb 6y ago
  Interestingly I think they're not entirely incompatible. If the funds can't cover their positions they will attempt to get money from somewhere. This could be loans or selling ownership of the fund, probably to other funds as it looks like has already happened with some. Effectively being forced to put more money in. Fundamentally the funds made an extremely risky bet and the market is (or was at one point) seemingly reasonably and expectedly betting against it with a short squeeze. The new part is the social hype driving the squeeze via an army of retail investors. Agree some retail investors are inevitably going to be left with a net loss here, which will suck. But it was (and may still be) a reasonable play when viewing the market as a gambling platform (which the funds were doing by over-shorting). My hope is that the people claiming to be cashing out their 401k on GME are partaking in anonymous internet hyperbole to fuel the hype and the vast majority are gambling with a few bucks they can afford to gamble with because they can't do anything else right now.

tartoran 6y ago

Thats not the same narrative I see on reddit. People are okay with losing as long as the big sharks are hit hard. It seems like an emotional reaction not a boiler room

dagmx 6y ago
It can be both. You can use the emotional reaction to push the scenario the poster was talking about. Ultimately , to the instigators in a boiler room, it doesn't matter why others invest, as long as they do. Having a compelling underdog story serves them well.

doom2 6y ago

What's the difference between reddit users taking action on the advice of other reddit users and everyday folks taking action on the advice of CNBC talking heads? In both cases, someone is saying, "This security might be a good buy."

llampx 6y ago

This is categorically false.

malwarebytess 6y ago
Prove it.
- llampx 6y ago
  Wikipedia to the rescue. https://en.wikipedia.org/wiki/Boiler_room_(business) https://en.wikipedia.org/wiki/Boiler_room_(business) Notably, public forums are not included as part of a boiler room scam.

sithlord 6y ago

its not really whats happening. Reddit has identified that there are more outstanding short shares than stocks. So in effect they are doing more of a blockade. Effectively, if buys continue, the hedge funds they will have to buy more shares than exist to get out of it, at a rediculous price.

tomp 6y ago

People were saying the same when Tesla was 350$. Some suckers (e.g. me) actually believed them.

castlecrasher2 6y ago

Do you not know the short-to-float context for GME? I suggest you read up on it; the retail movement isn't a pump-and-dump.

seth_davis 6y ago

jtmarlin.com says it all