The Rich Got Richer: GameStop's Trading Frenzy Benefited Wall Street's Elite (msn.com) 137
While GameStop's surge has been heralded as a victory for underdogs, "Growing evidence casts doubt on the idea that the episode mostly benefited small-time investors..." reports the Washington Post. (Alternate URLs here and here
"And, in at least some cases, novice investors lost their shirts." Giant mutual funds that own the largest stakes in GameStop saw the biggest gains in value. Hedge funds — some that have started using algorithms to track retail investors on social media sites — appear to have bought and sold millions of shares during the stock's most volatile period of trading, industry experts said... Instead of heralding a new wave of investor populism, the rise and fall of GameStop's stock may end up reinforcing what professional investors have known for a long time: Wall Street is very good at making money, and more often than not, smaller investors lose out to wealthy traders and giant institutions.
The four largest asset managers in the world together own 39 percent of GameStop shares, according to regulatory filings. Those stakes, which are mostly held for years in passive index funds, have collectively gained roughly $1 billion in value since the beginning of this year. One hedge fund, Senvest Management, recently boasted to clients that it made more than $700 million from a bet it placed on GameStop in September, the Wall Street Journal reported last week...
The sheer number of shares that changed hands during the stock's most manic trading period in late January suggests the episode was driven by more than just small, retail investors. Some hedge funds bought shares because they were forced to "cover" their short positions — a financial cost imposed on investors who bet a stock will go down before it goes up. Meanwhile, other hedge fund managers were probably taking calculated, short-term risks buying and selling as the stock price traded up, said Robert J. Shapiro, a policy fellow at Georgetown University and former economic adviser to President Bill Clinton. "You have hundreds of millions of shares being traded at prices of $200 to $300 a share," Shapiro said. "The Reddit crew cannot afford to play in this game in any significant way...."
Hedge funds have started to build algorithms or hire outside firms that specialize in scanning conversations on Reddit and Twitter for clues about what retail traders are thinking... "The most innovative investment firms realized that tracking Reddit was important to portfolio management," said Justin Zhen, co-founder of Thinknum Alternative Data, a New York software firm with more than 300 clients who pay for data scraped from various sources across the Web...
industry experts say the soaring stock price was almost certainly given a boost by the hidden hand of larger investors...
Another possibility regulators are examining is whether employees of large Wall Street firms were actively using the Reddit forum to boost their portfolios.
The Post also got this pithy summation from Andrew Hong, an analyst for a financial software company in Toronto. "There are some really smart people on [WallStreetBets], but for the most part, all this is just poor habitual gambling addicts versus rich habitual gambling addicts."
"And, in at least some cases, novice investors lost their shirts." Giant mutual funds that own the largest stakes in GameStop saw the biggest gains in value. Hedge funds — some that have started using algorithms to track retail investors on social media sites — appear to have bought and sold millions of shares during the stock's most volatile period of trading, industry experts said... Instead of heralding a new wave of investor populism, the rise and fall of GameStop's stock may end up reinforcing what professional investors have known for a long time: Wall Street is very good at making money, and more often than not, smaller investors lose out to wealthy traders and giant institutions.
The four largest asset managers in the world together own 39 percent of GameStop shares, according to regulatory filings. Those stakes, which are mostly held for years in passive index funds, have collectively gained roughly $1 billion in value since the beginning of this year. One hedge fund, Senvest Management, recently boasted to clients that it made more than $700 million from a bet it placed on GameStop in September, the Wall Street Journal reported last week...
The sheer number of shares that changed hands during the stock's most manic trading period in late January suggests the episode was driven by more than just small, retail investors. Some hedge funds bought shares because they were forced to "cover" their short positions — a financial cost imposed on investors who bet a stock will go down before it goes up. Meanwhile, other hedge fund managers were probably taking calculated, short-term risks buying and selling as the stock price traded up, said Robert J. Shapiro, a policy fellow at Georgetown University and former economic adviser to President Bill Clinton. "You have hundreds of millions of shares being traded at prices of $200 to $300 a share," Shapiro said. "The Reddit crew cannot afford to play in this game in any significant way...."
Hedge funds have started to build algorithms or hire outside firms that specialize in scanning conversations on Reddit and Twitter for clues about what retail traders are thinking... "The most innovative investment firms realized that tracking Reddit was important to portfolio management," said Justin Zhen, co-founder of Thinknum Alternative Data, a New York software firm with more than 300 clients who pay for data scraped from various sources across the Web...
industry experts say the soaring stock price was almost certainly given a boost by the hidden hand of larger investors...
Another possibility regulators are examining is whether employees of large Wall Street firms were actively using the Reddit forum to boost their portfolios.
The Post also got this pithy summation from Andrew Hong, an analyst for a financial software company in Toronto. "There are some really smart people on [WallStreetBets], but for the most part, all this is just poor habitual gambling addicts versus rich habitual gambling addicts."
It was great to see and cheer on... (Score:5, Insightful)
... in the beginning. But then it went on for days, long after it was clear that Melvin and others had been forced to cover or hedge.... and they just kept buying it. Some seemed to buy into the notion that the shorts "secretly" hadn't capitulated yet (often citing Ihor's (bad/misleading) S3 Partners data), but a lot of this was this "HODL" / "Diamond Hands" / "Buy The Dip!" collective cheering-on of themselves. Often really sleek memeable stuff [youtube.com], but it makes you wonder how much of that stuff was put out there by people just trying to get others to end up holding the bag.
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by people just trying to get others to end up HODLING the bag.
FTFY. But yes, that was always a risk to the scheme. Eventually the shorts would take their haircut and get out, then the price falls. Most of that insane value was situational and now the situation is over.
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BTW, in case it's not obvious, selling on the way down and buying on the way up is a losing strategy; buying on the way down and selling on the way up is the winning strategy.
Take, for example, stock X which starts at $100, plunges to $70 in a series of sharp increments, then goes back up to $100 in the same manner.
Plunge-seller / rise-buyer:
$100->$90: Sells 1x at $90
$90->$80: Sells 1x at $80
$80->$70: Sells 1x at $70
$70->$80: Buys 1x at $80
$80->$90: Buys 1x at $90
$90->$100: Buys 1x at $100
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The caveat is of course that this only works on value investments that you (rightfully) consider to be legitimately worth their value. If we were talking an overinflated stock, then all you're buying on the way down is junk that will never go back up again.
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You are correct that getting in early was important to making anything on it, and getting out at the peak is true of any stock. However, it wasn't actually pump and dump since there really was reason to believe the stock would see a spike in value since the shorts had gotten themselves deep into a squeeze. no matter what happens in the stock market, there are always naive traders following a trend that manage to buy high and sell low.
The stock price moved for all the wrong reasons, but that has been true fo
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I mean, worst case for the shorts, they closed their positions at a loss, then shorted again at the top and make it all back plus some on the way back down.
WORST case for shorts was to short the top?
I have to ask, then, what was the best case?
Any if they knew where the top was, it means they have a crystal ball, in which case they surely knew the stock was going to rise before it rose and covered beforehand.
The saddest part (Score:5, Interesting)
All those people HODLing, waiting for it to go to the moon. It sold for 485 - what do you think the moon looks like? And the sad part was the comment I saw that said "Everyone will tell you when it's time to buy - no one will tell you when it's time to sell," and it was downvoted to oblivion on Reddit.
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From what I saw, the HOLD people weren't in it for the value. They expected to lose in they end. They just wanted to hold long enough that the hedge funds had to buy high to cover their shorts.
I'm sure some people jumped in for the money, but there were a lot of people in it that where tired of Wall Street in general and just wanted to stick it to them for once.
And yeah, like the headline says, there certainly were investors that jumped in and profited. But the investors that shorted the hell out of the sto
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And they failed. They spent $400 on a piece of paper now worth $50. Where did the other $350 go? To a hedge fund that was shorting at $400.
They did. And the ones that shorted at $400 or already owned GameStop made billions. A few lucky retail investors who got in early made millions.
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The naked shorts that were put in at $20.
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What makes you think there were any naked shorts? And do you know what makes a short naked?
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I saw one columnist claim that the situation where short positions were 140% of the total stock and the volume of trades meant that naked shorting must have been happening. There simply was not enough liquidity to support the volumes (so this person alleged).
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There's no reason that 140% of the total stock being shorted forces it to be naked trades. Nor the volume. The fact is most retail investors had enabled loaning their shares (and certainly most of the funds as well.) So as soon as they bought GME, a HF borrowed it from them and sold it to someone else.
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and that person was ignorant and shouldn't be writing for publication.
Arthur has a share in his account, which Betty borrows and sells to Chuck. Debbie then borrows this share and sells to Ed. Flora then borrows the share from Fred and sells to George.
No naked transactions, and for this particular share, there is a 300% short position.
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It's why r/WallStreetBets went after GME in the first place. There was no money to be made (aside from pump n' dump which would have turned r/WallStreetBets in on itself) if they can't squeeze the shorters.
As for your second question:
https://www.investopedia.com/t... [investopedia.com]
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What makes you think there were any naked shorts? And do you know what makes a short naked?
A bottle of Courvosier and a Barry While album?
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They did that because they ran out of money, they didn't have the funds to allow millions of traders to buy the pump and dump stocks. Someone told me that 1 out of 20 Americans bought stock on those days on the pump and dump stocks.
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Someone told you - that means it must be true!
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No but unlike the WSB crowd, I know a little bit about the back end of how brokers work, it takes 2 days for transactions to clear, many brokers were unprepared for the onslaught. Someone told me that 1 out of 20 Americans traded GME during the peak week.
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and they just kept buying it.
It's almost as if stopping the stocks being traded on an app to prevent more people from getting suckered into something they didn't understand was a good idea!
Some great of understanding there, some total bull (Score:3)
> Wall Street is very good at making money, and more often than not, smaller investors lose out to wealthy traders and giant institutions.
More often than 90% of the time, smaller investors get the same 10% average return as everyone else - the average of the whole market.
> The four largest asset managers in the world together own 39 percent of GameStop shares, according to regulatory filings. Those stakes, which are mostly held for years in passive index funds
No they don't. The "asset managers" don't own squat. That's why they are called asset managers, not asset owners. Yes they are mostly held for years within passive index funds, which are within 401k and IRA accounts. They are owned by the 98%+ of small investors who do things the smart way.
Is the author perhaps confusing a couple thousand wannabe day traders with the 100 million small investors? Trading isn't investing, dude, and 0.1% isn't "most".
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Thank you, exactly what I was going to write.
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More often than 90% of the time, smaller investors get the same 10% average return as everyone else - the average of the whole market.
Do you know how compound interest works?
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> Do you know how compound interest works?
Extremely well. :)
Do you have a point you want to discuss?
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What are you saying? That the 10% compound growth for small investors is somehow different to the 10% compound growth for large investors?
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So the point you're making is that someone would be under-estimating the gain in their 401k if they did this to figure out growth over 20 years?:
20 years * 10% = 200%
It can be helpful to instead think of it as "your investment doubles every 7-8 years, typically."
So to estimate growth over 20 years, you would say it almost sounds three times. Meaning it's going to be a little shy of 800% growth, around 700%.
Is that your point?
Btw the "doubles every 7-8 years" rule I mentioned doesn't account for inflation. A
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smaller investors lose out to wealthy traders and giant institutions.
So your "gets the same percentage return" is deceptive because at the end of the day, it's how much you have in total.
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Ah, so your point is that the more you invest, the more you make. Gotcha.
Of course, that's just as true with simple interest.
20% of $100,000 is more than 20% of $1,000.
It doesn't matter if you got to 20% over time through simple interest or compound.
I guess that's why I had trouble guessing at the point you were trying to make - your initial post didn't hint at all at what you were trying to say. Instead, you just asked whether I'm familiar with a concept that's actually unrelated to your point.
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Of course, that's just as true with simple interest.
Simple interest is linear. Compound interest is exponential. If you have a lot of money and that grows with compound rates, which is everything, then the smaller guys simply cannot catch up and must inevitably lose to the bigger guys who can fail a lot more often.
10% compound return on investment is therefore not the same for the big guy as it is for the small guy, as you implied.
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I kinda see what's in your head there; it's something I was curious about myself a few years back. Try the math out for yourself. Try it with the same rate of of return for various amounts of principal. I think you'll be surprised at what you discover.
I think you'll find that 10% compounded 7 times is 95%.
I think you'll find that's true whether you're compounding $1 or $1 trillion.
That's worth repeating:
$1 invested at 10% compounded for 7 years will earn a total of 95%.
$99 trillion invested at 10% compoun
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20% of $100,000 is more than 20% of $1,000.
Dude you weren’t kidding, you are an expert on this stuff.
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Extremely well. :)
Well duh!
You invented compound interest! Go ahead, tell him.
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To clarify, I was saying compound interest works extremely well.
Not I know extremely well.
I sure do wish my *actions* had been more consistent with what I did know about that for 25 years. If you'd have looked at what I was doing financially for most of my life you'd say I was a dumbass. If I took an exam on head knowledge I would have scored well. Despite head knowledge, I got the real understanding of the power of compounding beat into me by paying out rather than getting paid.
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Do you know how compound interest works?
Does a bear shit on the Pope? This is the Internet, you name it, I’m an expert!
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Ps I actually glossed over one thing. Small investors actually end up with higher gains on average, when it comes to actual money in your pocket.
A large investor will put in a million and after a year they have $1.1 million. 10% increase.
A small investor will put $10,000 into their 401k and at the end of the year they have $1000 gain plus their employerarches $5,000 of their contribution. 60% increase in the first year.
That extra $5000 then continues to grow exponentially each year. The small investor does
Shorts (Score:3)
Has it? I keep seeing stories about how "people" thought it was this or that, or about how, gee, the price went back down so it was a failure?
I don't think so. It was always about putting a squeeze on shorts. And I think it did that.
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This. They victory that was scored wasn't financial - though some people did make a nice profit.
But what happened has changed the game. And the aftermath - which is still in the process of being settled - may well see new regulations on shorts, which is a good thing.
In the end, though, it wasn't enough yet and we need more of this happening. The financial markets are still a huge threat to the real economy, and politics are too corrupt and/or incompetent to put any real regulations on it, so sooner or later
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It does seem like this movement overshot the mark of squeezing the initial shortsellers, creating a great opportunity for a second wave of shortsellers. Personally I wouldn't paint those in the second wave with the same brush though. I think there's a difference between shorting a company because you think it's overvalued and will go down, vs. trying to force a company
Gamblers always loose in the long run. (Score:2)
It's a perfect illustration of when greed takes over from principals.
Here's the rule to make money on the market:
Invest for the long term, never "trade."
"Making money" (Score:5, Insightful)
That statement would imply they are creating the wealth which doesn't yet exist. More accurately, Wall Street is very good at extracting money/wealth, not making it.
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That statement would imply they are creating the wealth which doesn't yet exist. More accurately, Wall Street is very good at extracting money/wealth, not making it.
That's rather needlessly pedantic, and contrary to common usage. When someone asks you, "How much money do you make at your job?", they're asking about the money you got from your employer, not about how much wealth you create. True wealth creators are rare, and these days, almost universally despised.
maybe don't buy garbage stocks? (Score:2)
they just closed hundreds of stores, have no earnings growth, pure digital sales are killing their business model and fools were buying them cause the internet told them to
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Maybe don't short garbage stocks.
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Did you even read the article? The majority of the fools lost money. The people who should know better did know better and made money. Gamestop peaked at over $400 and is now worth $50. If you don't think the hedge funds made a killing on that, I've got a bridge to sell you.
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I've got a bridge to sell you.
Oh no, I’m not falling for that one again! This time I want to see a picture of the bridge to make sure it exists!
and the pope is catholic (Score:3)
It would've been strange if other players on Wall Street had not jumped on the opportunity. It's their job, after all.
Doesn't change the fact that a couple common folks took a couple huge hedge funds for a ride. They brought public attention to the problems that short selling brings to the market and the economy. They made future bets on driving an ailing company into the ground with over-leveraged shorts a lot more risky. All of those are good things.
that didn't take long (Score:2, Interesting)
At the start of this thing, I actually went and watched his youtube "let's all buy gamestop" vid. Five minutes into
Wargames. (Score:2)
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The only winning move is not to play.
...or better still, just buy a share of the casino (i.e. invest in index funds).
(I made this same post below before noticing you had made the first part of it already).
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Look up.
Higher.
HIGHER!
See that up there?
That’s Wargames reference.
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No lets play global thermonuclear war.
Target Wall street
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There is another winning move: Be so powerful that you can rig the game. Small "investors" only serve as chattel to be slaughtered.
What I fear is the feds' future moves (Score:5, Insightful)
Most of the posts I've seen on social media show users knew exactly what they were doing. GME was shorted 140%. Take some money, buy stock and hold. Heads we win (get rich), tails you lose (you get screwed). None of this would have been possible if they hadn't gotten back into naked shorting.
The feds are now indicating they might go after guys like u/DeepFuckingValue. That's a terrible move because no matter what the pedantic finger waggers like on HN might say, you have millions of people are flat out fucking fed up with the very legal system itself on these issues. Future historians will probably note that this was the moment where Wall St should have realized that the people were beginning to gain a willingness to suffer pain to inflict pain on their enemies (big capital).
Even if the feds are 100% legally right going after the organizers on WSB, they're wrong in the court of public opinion. The public hasn't forgotten or forgiven the feds' inability to put any bankers behind bars for 2008. Notice that no one in the DoJ is hinting that they're going to go after the short sellers who made this possible by going so crazy on shorting that it was mathematically impossible to satisfy their options trades at reasonable prices if retail investors simply started buying up and holding.
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>None of this would have been possible if they hadn't gotten back into naked shorting.
For crying out loud.
People are *still* spouting this ignorant twaddle?
No, 140% does *not* indicate, or even *suggest*, naked shorting.
End of story; it doesn't.
To reduce this to the kindergarden level, once somebody buys a share that happens to be from a short seller, it can be lent for selling in the next short sale. Absolutely *nothing* naked here.
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Absolutely *nothing* naked here.
Speak for yourself.
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But the hedge fund short sellers made billions, so how does that help? At least the ones shorting at $400 did.
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The ones naked shorting late last year got hit hard. That was really the whole point.
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How does shorting a company drive it into bankruptcy? The only two relationships the stock price has to the value of the company are if they want to issue new stock or get taken over. Since someone decided to buy 15% of GameStop stock and get seats on the board to turn it around, what makes you think they were gonna be convinved to liquidate at a loss?
Quite a few funds with hundreds of thousands of shar
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There are a lot of debt covenants out there, but I am unaware of many (any) that have to do with share price. Most seem based around accounting metrics (e.g. assets, shareholder equity, EBITA) or credit rating which are not directly impacted by stock price. And then of course there are the other covenants that prevent you from doing things in the future.
But maybe I'm wrong?
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So some people made their crusade work with the money of other people. That is perfect. Convince people their loss is somehow noble - I wish I was that persuasive.
Fuck the little guy (Score:4, Insightful)
Only two groups of people benefitted from this.
The ones doing the market manipulation and the ones with the software and systems to take advantage of the fluctuating stock price.
Nothing of value was created here, all the money gained by those behind this, and those in wall street taking advantage of the situation has been taken from the fools who thought it was a good idea because someone on social media said so.
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Actually false. The ones doing the market manipulation are the ones that got screwed. Wall Street isn't a monolithic entity. Those hedge funds which manipulated the stock into the ground escaped bankruptcy but suffered some incredible losses. The two groups who benefited were those with software systems, and those with a shitton of money to bet against their competing hedge funds.
Nothing of value was created here
It's share trading. By its nature it doesn't create value.
Actually it probably saved Movie theaters (Score:2)
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>short a viable company into bankruptcy
*groan*
After however many dozens of articles each on this site and everywhere else, people are *still* repeating this nonsense.
Even the stock going to zero does not, in any way, send the company into bankruptcy. That's just not how corporations and the law works.
Nor does a high stock price keep a company *out* of bankruptcy.
The corporations own finances and its stock price are only tangentially related. The stock price presumably/hopefully represents investor proj
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Value creation (Score:2)
"Nothing of value was created here."
Welcome to the stock market. The only value created by it is during a stock issuance, where the capital is used to improve the company. During normal trading, no value is ever created.
The only winning move is not to play... (Score:2)
...or better still, just buy a share of the casino (i.e. invest in index funds).
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And yet they perform exactly as well as the overall market and so by definition as well as the average investor, with much lower costs, for greater overall profits...
(Hint: it's because your account of how they work lacks all nuance. They increase their holdings of a security in proportion to its market capitalization, which already isn't exactly the same thing as its share price, but that aside, it means they're buying exactly while the security is performing bullishly -- not at the top of the curve, but o
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Index funds are a scam.
No, they do what they say they’re going to do and track indexes pretty closely.
They don’t all track the S&P.
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You know the cliche’, the market can remain irrational longer than you can remain solvent.
Higher Taxes on HFT and short-term holds (Score:3)
There need to be multiple levels of higher and higher taxes on the shorter and shorter holding of anything stock related.
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Ahhh, the old "if we mandate things to be slower it'll be less volatile" fallacy. Sorry but this has never worked in history. Punishing speed only cause the speed to reduce while increasing fluctuations. The underlying conditions that make the market volatile don't go away.
Many governments and many industries had tried this. It has always ended poorly.
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It will however remove the market case for stock manipulation.
No it won't for precisely my point. Extend the timeline the volatility increases making the potential gains larger.
By the way maybe you should define "manipulate", because if you're defining it the way I think you are then HFT has even less to do with it than you think.
Completely Misses the Point (Score:4, Interesting)
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I haven't stayed current with the gossip, but was there a particular reason the Melvin was targeted? Or simply a target of opportunity?
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Where do you think the money they lost went to?
The stupidest thing to do (Score:2)
is to go online and tell everyone to buy and hold, someone can take your opposite position and make money off you. Wall street wasn't the only one who benefited from GME, the reddit traders who bought calls and encouraged people to pump and dump made off with millions.
Hair Cut? It's doubled in price since December. (Score:2)
The price in December before all this started was aroud $15, and it's now $50 [yahoo.com]. In fact it only got to $50 on 25 January, and surprise surprise that's the week Google Trends says searches peaked interest peaked at over 10 times the normal level [google.com.au].
The people who started this did it around 17 Jan, which is the week before Google trends says interest started to rise. It was around $40 on 22 Jan, which when Wikipedia says WSB initiated the short squeeze. [wikipedia.org] They could of got out ages ago of course with a 1000% pro
But... (Score:2)
It's still sitting at more than double it's pre-scandal value. Everyone knows the GameStop story. They have been "reinventing" themselves in the wrong direction for a decade at least.
As an avid gamer that grew up with GameStop I am a huge fan. As an investor I feel like further correction is imminent.
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Anyone who participated in the actual move as promoted by Wall Street Bets is just fine. A few in that sub-reddit were nuts about the play for 6 months. The late comers who went for the media frenzy lost money to the front runners and momentum players.
If you want to hit on a 12 to 1 shot, go to the track, on a rainy day and take the field bet. If you want 3-35% returns on your money, year over year, invest.
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That's probably why these days they've moved out into selling shit like T-shirts and Pop Funko figures - they're find
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Of course it did (Score:2)
The sad part is this was obvious at the time. But these morons thought they were sticking it to those evil shortsellers and making a buck at the same time. Instead they were just the marks in a crowdsourced pump and dump.
Who could have guessed this would happen? (Score:2)
It's almost as if people who spend every waking hour working out what trade to make, whose income rises and falls on their ability to take advantage of market action, who have massive computing power at their fingertips able to digest millions of pieces of information in a second would be able to use this volatility to their benefit?
To all those who thought they were "sticking it" to the man, congratulations. You played yourself.
O really? (Score:2)
I was already wondering who sold the stock to the small investors in the first place.
Um (Score:4, Insightful)
Giant mutual funds that own the largest stakes in GameStop saw the biggest gains in value.
Um, ok ... you do know that's us, right? Us little guys and our 401ks?
Swimming with sharks... (Score:2)
I took a wander through that subreddit. It seems to be composed of a whole bunch of people thinking that because they can talk the lingo, they have some inner understanding of how the stock market works. They are enamored with demonstrating they understand financial stock metrics that any fool can google. Well, the large entities employee people who know those metrics much better than the retail investor, no matter how eloquent their financial discourse.
You've got a holy war being run by some entity who is
Technical analysis (Score:2)
Meet the new boss... (Score:2)
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Anyone who bought in when GME was around $20-$50 made out like a bandit. It wasn't a true pump-and-dump since a lot of the value added during the run-up was from Melvin and others getting squeezed. That one guy didn't make all his money off the gullibility of Redditors.
The ones who bought at around $300+ and didn't sell at $400+ were the ones who got wiped out.
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It's easy for the individual investor to make money. You put money into solid stocks and you get dividends and the price goes up over time. In the UK you can buy an ISA which is a tax free savings account and your money goes into funds managed by professionals and, as a rule, it increases in value (mine got badly burned in 2008, but has since recovered) or you can buy a pension and your money goes into funds managed by professionals and, as a rule, it increases in value. You don't get spectacular gains like