Stock of the Day
Out of context: Reply #313
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- sarahfailin0
Ok y'all. Reality check time. There are so many misunderstandings about GameStop and the short sellers and the redditers; I have got to get this off my chest.
1. Shorting the stock does not lower or 'drive down' the stock's price.
2. A lower stock price does not hurt the company. It doesn't close their stores, hurt their sales, or fire their employees.
3. Buying the stock or causing its price to rise does not help the company unless it issues new stock. GameStop has not issued new stock and is still in serious trouble. Their sales declined 30% in 2020, despite video game sales soring during the pandemic.
4. Although hedge funds have lost a few billion dollars closing their initial short positions, they can always reopen the short positions at the stock's higher price, and ride the collapse all the way down, making billions more. They are almost certain to do exactly this, no matter if the stock hits $500 or $1000.
5. The people who will really lose are the individual investors who are buying high at the top of this artificial bubble. The few who got this started will sell their shares and make handsome profits, while the rest of these 'revolutionaries' are left holding the bag.
6. If new regulations come as a result of this, they may land on individual investors, rather than hedge funds. They could take away options trading on retail investor apps (which have driven the squeeze) or try to control pump and dump schemes (like this one) happening on social media.
7. Hedge funds make money investing *other people's* money; including state pensioners and middle class investors. These are the folks who would be hurt by the short squeeze; not the handful of employees who work for the funds. https://www.forbes.com/sites/edw… They're generally smaller companies (not like the big banks) and they're investing in the same things that individuals can.
Private equity is a much more concerning and inequitable engine for wealth generation for the very wealthy to which anyone with less than a million to invest has basically no access. Fewer companies, especially tech, are going public, and instead are looking for investment through Private Equity firms. Here, all of their earliest and most fruitful gains are reserved only for the very wealthy to benefit from.
- Thank you.monospaced
- 1. any selling can tend to lower a stock's price. Massive selling is almost sure to. Shorting is borrowing a stock and selling it, so yes it can lower the pricemonNom
- 2. yes it does. it hurts investors in that co, it hurts insiders, it damages their ability to raise capital, and may trigger loan obligations tied to market capmonNom
- 2a. it is very possible to destroy a company through the capital markets, if that company is reliant on those markets to survive. Pubcos tend to be that way.monNom
- 3. my read on the situation is that this has nothing to do with GME as a company. It was the most shorted stock on the market, followed by BBY, AMC, etc.monNom
- That's why the squeeze. Gamestop is merely the avatar for the righteous hand of the market smashing some careless hedgies.monNom
- Agree the unsophisticated investors piling in are likely to lose their shirts.monNom
- re: 1. only a large volume of sellers/shorts would affect the price. there'd have to be a shortage of buyers toosarahfailin
- re: 2. hurting investors isn't hurting the company. i've never heard of loans 'tied to market cap'
re: 2a. that's not the case with GS. and wtf is a "pubco"?sarahfailin - when you are in a world where a small group of players can sell 140% of a security, 2+2 no longer equals 4monNom
- loans in a public company (pubco) are generally going to be bonds, they have ratings based on the companies financial health. market cap plays into that.monNom
- in some cases, that credit needs additonal collateral, and companies will pledge shares. When the value decreases, they need additional collateral.monNom
- Two words for you: Diamond Hands.shapesalad
- leading to a feedback loop that can make the company insolvent. Bonds also expire and new bonds must be issued. All pubcos roll over debt. They never pay it offmonNom
- so, to sum it up: yes, price manipulation can have real world impacts on a company's health. This is one reason why CEOs are concerned with their share price.monNom
- to reiterate, I'm not against your central thesis that this is dumb money speculating. I think you had the first bit wrong about price being inconsequential.monNom
- ^cool thanks, i was a bit off by saying that shorting doesn't drive price down. i just meant it doesn't do so more than selling, which is fine to do.sarahfailin