You may have seen strange comments and articles referencing AMC and Gamestop in the last couple of days. Here’s why.
Game stop is up almost 800% in 5 days, going from a $3 billion company to a $25 billion company! AMC is up almost 600% in the same period, now a $6 billion company from a $1 billion company 5 days ago. These kind of ‘returns’ are what has been sparking the storm of news around the 2 companies. MADNESS or JUSTIFIED? What is driving this?
Basically, the 2 share prices are being driven by a lot of very angry people. I kid you not.
These 2 stocks were both heavily shorted by Wall Street ‘Professionals’. Retail investors who post open comments on their trading ideas on Reddit’s board “WallStreetBets” decided to fight against these professional who had large short positions in the stocks. Basically, the professionals put their money on the stock going down (they lose if it goes up) while the ‘amateurs’ are putting their money on the stock price going up. Collectively the amateurs, with the Reddit board as the source of the ‘collaboration’, decided to drive the price up, causing anyone with short positions to experience MASSIVE losses in their position, with the hope of forcing them to close their short positions. In fact, it also forces the pro’s to add to the carnage – The explosion in share price forces the hedge funds to cover their losses by buying stock, thereby adding to the upward momentum. INSANE.
So far, the ‘amateurs’ are winning, as can be seen in the crazy increases in share price. Reading through the reddit board shows some very angry people, who believe they are essentially modern-day RobinHoods – taking money from the rich (who use WallStreet professionals) and giving it to the poor (themselves and their community of like-minded individuals). Basically a revolt against the pro’s. Check out some angry posts (the only 2 posts I read – excuse their language) here https://www.reddit.com/r/wallstreetbets/comments/l6nani/im_sick_of_hearing_wall_street_act_like_we_cant/ and here https://www.reddit.com/r/wallstreetbets/comments/l6ocfn/im_so_fucking_proud_of_every_single_person_in_or/ . NBC reported that S3 Partners, a financial data company, found that short sellers had lost $23.6 billion on GameStop this month.
How does this end? Well, I can’t imagine short sellers holding their positions through this kind of a rise, so probably mission accomplished. But also, with 2 highly over valued companies, possibly more over valued than tesla even. Already some retail brokers like TD Ameritrade have stopped investors buying more stock in these shares. It would be a nightmare if they also stopped them selling the stock when the movement dies, as big losses are probably coming.
Overall, a crazy story to watch unfold. A lot of heavily shorted companies share prices are rising significantly just in the hope that the reddit community will target those short positions next. It’s amazing what democratizing access to financial markets can do, as well as the damage. With free leverage available to retail investors, and community chat boards where literally millions of people can come together, the retail traders collectively can access enough financial firepower to take on Wall Street for the sake of it, not based on a company’s fundamentals – scary.
A final word on the thought of market manipulation – as the community boards are public, all the information is out in the open – it’s public. Good luck to the regulator. And good luck to the investors who realise there is no liquidity when ‘it’s time to get out’ en masse.