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As someone relatively well educated in finance and capital markets the whole GME fiasco has further convinced me of just how foolish and easily manipulated the

by jboog 6y ago

As someone relatively well educated in finance and capital markets the whole GME fiasco has further convinced me of just how foolish and easily manipulated the average person is. It was pretty incredible what happened with the whole pump and dump a few weeks ago I won't lie, but when GME was at 325 a share and literally many thousands of people on WSB were insisting it would go to $1000. Why? "I like the stock" or "The new CEO has an amazing plan to go digital!" They sell video games. In malls. Is this 2003? Imagine 15 years ago pumping up Blockbuster stock to 20x what it was worth. Just utter insanity. Not to shit on "average joe" it's also caused me to reflect on what biases might be causing me to have really dumb beliefs on things I don't have any domain knowledge of.

exporectomy 6y ago
Are you confusing some individuals who commented positively about the new CEO's digital plan with the whole popular trend of trying to punish short sellers and maybe turn GME shares into a kind of currency that has value independent of how the company is actually doing, like cryptocurrencies?
- jboog 6y ago
  Are we still punishing short-sellers now? Because most of the major HFs and shorts closed their positions or hedged several weeks ago now and GME is still being pumped all over WSB And that's not even getting into the fact that 99% of WSB posters had no idea what a "short squeeze" was about 60 days ago. There were some sophisticated people who understood what was going on there and hundreds of thousands of easily manipulated people who thought it sounded like a way to make a quick buck. And I'm not begrudging the people who made money on this. Good for them! I'm just annoyed by the ex post rationalization that there were all somehow masters of complex financial instruments because they bought a meme stock.
rightbyte 6y ago
I think their point was that the price would go up due to "stock shortage" due to too many stock leasers had sold the stock they were leasing and needed to buy it back to return it? Not that the company had any value in it self at that price.
otherme123 6y ago
> Why? "I like the stock" or "The new CEO has an amazing plan to go digital!" This, along with "I'm retarded" or "I'm an ape" is needed to avoid acusations of market manipulation. That said, it were not the fundamentals of GME the ones that pushed the stock price up: it was discovered that some people just shorted too much, and market efficiency tend to pushish those errors. Some people still think that there's still a chance of squeezing, and they're putting money after that. It's a bet, and it's played in r/wallstreetBETS. I don't think they're being manipulated: you can read almost daily a report on volume, open shorts, etc. They know that they are playing in a casino, and they know the rules of the game being played.
- UncleMeat 6y ago
  The sub grew 10x in days. Whatever culture and jargon existed previously has been blown over and replaced with getting rich and populous rage.
- lupire 6y ago
  > people just shorted too much, and market efficiency tend to punish those errors. That's not the efficient market, that's the market failing due to logically out of bounds behavior regarding negative numbers of theoretical real objects. The shorters were right, with respect to efficient market ideas about value.
  - Olreich 6y ago
    The market doesn’t reflect reality unless everyone in the market agrees to reality. The hedge funds choose their reality and try to convince everyone of it. They’ve been doing that for decades. The only change here is that a bunch of people on social media started doing it too, and it’s working.
- fractionalhare 6y ago
  That's not what market efficiency means. Market efficiency is specifically a function of liquidity and price discovery. A market is more efficient when the price of assets is derived from some measure of intrinsic value. Technical factors emergent in trading mechanics (such as what causes a short squeeze) do not have intrinsic value. Obviously you can can extract value from them in the short term, but that is not the same thing as market efficiency. When you trade on technical factors like a short squeeze, your orders do not enhance a directional view of the asset or the liquidity of the asset. This is to say that not everything which is profitable is enhancing market efficiency. Generally speaking: long/short strategies are preoccupied with price discovery and valuation, systematic momentum, trend and volatility strategies are concerned with arbitrage, and market makers are concerned with liquidity. These three exist on a spectrum between enhancing price discovery and enhancing liquidity. There isn't really anything inefficient about shorting too much - if that happens, it means there's widespread consensus the asset is overvalued, which is likewise a statement that there should be less of the asset at that value. The valuation and liquidity have a feedback cycle here. In the case of GME, a directional view that could contribute to price discovery would be that GME should actually be valued on future revenues which are mispriced by the market due to a variety of factors (e.g. Ryan Cohen, digital-first transformation, etc). It would still be generous and optimistic, but it would at least be a coherent directional thesis. The process of market efficiency would be to incorporate this view when you stake with an open position, and theoretically if you're right your view will be vindicated. There is nothing efficient about GME at $100, let alone $400.
callmemclovin 6y ago
> literally many thousands of people on WSB were insisting it would go to $1000. Yes, and nobody knows what would've happened if there was no dubious buying restriction from brokers. With the strong momentum of the stock price on that day, 1000$ was not unrealistic. > Imagine 15 years ago pumping up Blockbuster stock to 20x what it was worth. The famous VW short squeeze happened 13 years ago and made VW the biggest company in the world for a short period of time.
- UncleMeat 6y ago
  GME also grew more than VW did. So if that is your evidence that GME would grow another 3x...
- jboog 6y ago
  The very idea that someone would argue that GME at $1000 a share which is almost FIFTY TIMES what it was valued a few months ago is a reasonable price for this stock is just absolutely bonkers. I'm talking about what the company is ACTUALLY worth, not how many suckers are willing to roll the dice on a dubious pump and dump scheme. Imagine if someone told you Blockbuster was worth FIFTY TIMES what it was trading for on the market in 2007. Gamestop's long term prospects are about as optimistic as BB was at that time. Their revenue comes almost exclusively from retail sales of video games, IN MALLS. You can say that "they're going digital!" and ok, fine that might stave off bankruptcy for a few more years maybe even allow them to remain in business for a while, but selling games online is...pretty competitive lol. And why would someone prefer to buy a digital game from GME when there is PSN, XBL, Steam, Battle.net etc. etc. ? Or if we believe physical copies of games are going to be around past a few more years, how are they going to compete against Amazon, WM, Target, Newegg etc which have somewhere between a 5-10 year head start?
cwhiz 6y ago
This really boils down to “I disagree with the retail traders.” There is no “true” value, despite what all the “experts” might think. The price is what the market thinks it is. If you think that price is too high, just don’t buy.
- jboog 6y ago
  The people who believe GME is worth $1000 a share are 100% absolutely wrong. That's FIFTY TIMES what it was valued at ~2 months ago. They sell video games in malls for fuck's sake. Based on what? "I like the stock"? Likely the same people who believe BLACKBERRY is going to make a comeback! lol
toomuchtodo 6y ago
> It was pretty incredible what happened with the whole pump and dump a few weeks ago I won't lie, but when GME was at 325 a share and literally many thousands of people on WSB were insisting it would go to $1000. Interactive Brokers CEO confirmed this on CNBC. https://www.youtube.com/watch?v=7RH4XKP55fM https://www.youtube.com/watch?v=7RH4XKP55fM
CTDOCodebases 6y ago
The words parroted where a confirmation of social alignment. What people were investing in was a sense of belonging/power and/or the belief that the short sellers could not exit their positions. Some knew that they could ride it up with the hype then cash out near the top and short it on the way back down. Those sentiment towards the new CEO and a change of direction was valid but that’s a big gamble at $400 a share. That said I find any sort of investment that doesn’t generate income in the short to medium term odd myself.
imtringued 6y ago
WSB did it to squeeze Melvin Capital. A hedge fund did lose a huge amount of cash. It turned into a greed driven pump and dump afterwards via conspiracy theories that Melvin Capital is still in the market. The conspiracy theory was reinforced by the strong media push back, Robinhood's CEO blatantly lying on television and the still high short interest. If you put money into GME for shits and giggles you got your money's worth.

by jboog 6y ago

exporectomy 6y ago

Are you confusing some individuals who commented positively about the new CEO's digital plan with the whole popular trend of trying to punish short sellers and maybe turn GME shares into a kind of currency that has value independent of how the company is actually doing, like cryptocurrencies?

jboog 6y ago
Are we still punishing short-sellers now? Because most of the major HFs and shorts closed their positions or hedged several weeks ago now and GME is still being pumped all over WSB And that's not even getting into the fact that 99% of WSB posters had no idea what a "short squeeze" was about 60 days ago. There were some sophisticated people who understood what was going on there and hundreds of thousands of easily manipulated people who thought it sounded like a way to make a quick buck. And I'm not begrudging the people who made money on this. Good for them! I'm just annoyed by the ex post rationalization that there were all somehow masters of complex financial instruments because they bought a meme stock.

rightbyte 6y ago

I think their point was that the price would go up due to "stock shortage" due to too many stock leasers had sold the stock they were leasing and needed to buy it back to return it? Not that the company had any value in it self at that price.

otherme123 6y ago

> Why? "I like the stock" or "The new CEO has an amazing plan to go digital!" This, along with "I'm retarded" or "I'm an ape" is needed to avoid acusations of market manipulation. That said, it were not the fundamentals of GME the ones that pushed the stock price up: it was discovered that some people just shorted too much, and market efficiency tend to pushish those errors. Some people still think that there's still a chance of squeezing, and they're putting money after that. It's a bet, and it's played in r/wallstreetBETS. I don't think they're being manipulated: you can read almost daily a report on volume, open shorts, etc. They know that they are playing in a casino, and they know the rules of the game being played.

UncleMeat 6y ago
The sub grew 10x in days. Whatever culture and jargon existed previously has been blown over and replaced with getting rich and populous rage.
lupire 6y ago
> people just shorted too much, and market efficiency tend to punish those errors. That's not the efficient market, that's the market failing due to logically out of bounds behavior regarding negative numbers of theoretical real objects. The shorters were right, with respect to efficient market ideas about value.
- Olreich 6y ago
  The market doesn’t reflect reality unless everyone in the market agrees to reality. The hedge funds choose their reality and try to convince everyone of it. They’ve been doing that for decades. The only change here is that a bunch of people on social media started doing it too, and it’s working.
fractionalhare 6y ago
That's not what market efficiency means. Market efficiency is specifically a function of liquidity and price discovery. A market is more efficient when the price of assets is derived from some measure of intrinsic value. Technical factors emergent in trading mechanics (such as what causes a short squeeze) do not have intrinsic value. Obviously you can can extract value from them in the short term, but that is not the same thing as market efficiency. When you trade on technical factors like a short squeeze, your orders do not enhance a directional view of the asset or the liquidity of the asset. This is to say that not everything which is profitable is enhancing market efficiency. Generally speaking: long/short strategies are preoccupied with price discovery and valuation, systematic momentum, trend and volatility strategies are concerned with arbitrage, and market makers are concerned with liquidity. These three exist on a spectrum between enhancing price discovery and enhancing liquidity. There isn't really anything inefficient about shorting too much - if that happens, it means there's widespread consensus the asset is overvalued, which is likewise a statement that there should be less of the asset at that value. The valuation and liquidity have a feedback cycle here. In the case of GME, a directional view that could contribute to price discovery would be that GME should actually be valued on future revenues which are mispriced by the market due to a variety of factors (e.g. Ryan Cohen, digital-first transformation, etc). It would still be generous and optimistic, but it would at least be a coherent directional thesis. The process of market efficiency would be to incorporate this view when you stake with an open position, and theoretically if you're right your view will be vindicated. There is nothing efficient about GME at $100, let alone $400.

callmemclovin 6y ago

> literally many thousands of people on WSB were insisting it would go to $1000. Yes, and nobody knows what would've happened if there was no dubious buying restriction from brokers. With the strong momentum of the stock price on that day, 1000$ was not unrealistic. > Imagine 15 years ago pumping up Blockbuster stock to 20x what it was worth. The famous VW short squeeze happened 13 years ago and made VW the biggest company in the world for a short period of time.

UncleMeat 6y ago
GME also grew more than VW did. So if that is your evidence that GME would grow another 3x...
jboog 6y ago
The very idea that someone would argue that GME at $1000 a share which is almost FIFTY TIMES what it was valued a few months ago is a reasonable price for this stock is just absolutely bonkers. I'm talking about what the company is ACTUALLY worth, not how many suckers are willing to roll the dice on a dubious pump and dump scheme. Imagine if someone told you Blockbuster was worth FIFTY TIMES what it was trading for on the market in 2007. Gamestop's long term prospects are about as optimistic as BB was at that time. Their revenue comes almost exclusively from retail sales of video games, IN MALLS. You can say that "they're going digital!" and ok, fine that might stave off bankruptcy for a few more years maybe even allow them to remain in business for a while, but selling games online is...pretty competitive lol. And why would someone prefer to buy a digital game from GME when there is PSN, XBL, Steam, Battle.net etc. etc. ? Or if we believe physical copies of games are going to be around past a few more years, how are they going to compete against Amazon, WM, Target, Newegg etc which have somewhere between a 5-10 year head start?

cwhiz 6y ago

This really boils down to “I disagree with the retail traders.” There is no “true” value, despite what all the “experts” might think. The price is what the market thinks it is. If you think that price is too high, just don’t buy.

jboog 6y ago
The people who believe GME is worth $1000 a share are 100% absolutely wrong. That's FIFTY TIMES what it was valued at ~2 months ago. They sell video games in malls for fuck's sake. Based on what? "I like the stock"? Likely the same people who believe BLACKBERRY is going to make a comeback! lol

toomuchtodo 6y ago

> It was pretty incredible what happened with the whole pump and dump a few weeks ago I won't lie, but when GME was at 325 a share and literally many thousands of people on WSB were insisting it would go to $1000. Interactive Brokers CEO confirmed this on CNBC. https://www.youtube.com/watch?v=7RH4XKP55fM https://www.youtube.com/watch?v=7RH4XKP55fM

CTDOCodebases 6y ago

The words parroted where a confirmation of social alignment. What people were investing in was a sense of belonging/power and/or the belief that the short sellers could not exit their positions. Some knew that they could ride it up with the hype then cash out near the top and short it on the way back down. Those sentiment towards the new CEO and a change of direction was valid but that’s a big gamble at $400 a share. That said I find any sort of investment that doesn’t generate income in the short to medium term odd myself.

imtringued 6y ago

WSB did it to squeeze Melvin Capital. A hedge fund did lose a huge amount of cash. It turned into a greed driven pump and dump afterwards via conspiracy theories that Melvin Capital is still in the market. The conspiracy theory was reinforced by the strong media push back, Robinhood's CEO blatantly lying on television and the still high short interest. If you put money into GME for shits and giggles you got your money's worth.