Anyone want to explain the Gamestop thing

[Ausmumof3]

To a total dunce at economics, stock markets and the whole lot?   Is this going to make a mess of something?

[popmom]

No. Unless you are among the super wealthy who routinely shorts stocks to make money. For the rest of us it’s just entertainment lol. I got an email from Wall Street Journal today, but my 20 year old had already brought it up. My dh was able to explain it in great detail. I’m sorry I can’t do the issue justice myself. My impression is that it only matters if you are a day trader—which I am not. 

[Shoeless]

Here you go:

GameStop and Hedge Funds

DH bought a couple of shares of GameStop when this craziness started. I'm hoping we make a couple hundred off it. 

[Kassia]

32 minutes ago, MissLemon said:

Here you go:

GameStop and Hedge Funds

DH bought a couple of shares of GameStop when this craziness started. I'm hoping we make a couple hundred off it. 

I don't understand any of it, but DH told me ds2 made a lot of money in 24 hours from it.  

 

[TravelingChris]

Well I am super happy about this.  Can I just say that I hate hedge fund people?  And also that I hate people who try to destroy businesses to make money?  Or who buy businesses and then do everything to get all the money out while the business and the employees flounder?

[Pam in CT]

re Gamestop & hedge funds as a David & Goliath story

4 hours ago, MissLemon said:

Here you go:

GameStop and Hedge Funds

DH bought a couple of shares of GameStop when this craziness started. I'm hoping we make a couple hundred off it. 

This is a good explanation of the front-stage scene.

And as is so often the case there is also a simultaneous off-stage scene, where the institutions actually buying & selling (& bundling, & repricing the consolidated bundles of) the options, complicate the Robin Hood narrative.  (The linked article also includes helpful little sidebars that walk through what shorts, options, execution of trades etc are).

 

[vonfirmath]

5 hours ago, Ausmumof3 said:

To a total dunce at economics, stock markets and the whole lot?   Is this going to make a mess of something?

Only if the government steps in to try and make rules that cover it.

 

Oh and my husband thinks the people who will pay for the "loss" is going to be shuffled into those who have retirement funds in these companies.  So not huge companies but folks who made no decisions about shorting, etc.

Edited January 28, 2021 by vonfirmath

[Noreen Claire]

I have only read a bit about it, but my BFF's college-age kid is about to make in a week of trading what a minimum-wage worker makes in a year of work, so...

[Carrie12345]

1 hour ago, vonfirmath said:

Only if the government steps in to try and make rules that cover it.

 

Oh and my husband thinks the people who will pay for the "loss" is going to be shuffled into those who have retirement funds in these companies.  So not huge companies but folks who made no decisions about shorting, etc.

I don’t have a broad or deep understanding of the stock market, but my impression is that the everyday 401k investor who might own some of the particular stocks in question are part of the group benefiting.  They’d be the ones who were “borrowed” from, no???

[Pam in CT]

aaaaaand.... Scene , lol

 

from linked Robinhood blog post / press release an hour ago:

Quote

Keeping Customers Informed Through Market Volatility

Our mission at Robinhood is to democratize finance for all. We’re proud to have created a platform that has helped everyday people, from all backgrounds, shape their financial futures and invest for the long term.

We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG. We also raised margin requirements for certain securities...

...We’re committed to helping our customers navigate this uncertainty. We fundamentally believe that everyone should have access to financial markets. We’re humbled to have helped many people invest in the markets for the first time. And we’re determined to provide new and experienced investors with the tools and resources to help them invest responsibly for their long-term financial futures.

LOL re "in light of recent volatility."

 

[It's fine to gamble; just know that what you're doing, is gambling.  And in every gambling game there actually are winners -- every weekend in Vegas there are a handful of folks who actually do win big and actually do come home with a suitcase of money.

But know that the house is structurally advantaged by the rules of the game. And also that the house can change the rules at any time, like Robinhood just did.]

[fraidycat]

🤷🏻‍♀️ I can't do an explanation any justice, but what I'd like to know is how it was legal in the first place. How they could sell something they didn't own and some of which didn't even exist.

This is what the whole process sounds like to me:

- I borrow your car with the promise to return it in a few months

- I sell the car at current market value... to somebody who will use it in a demolition derby or two, knowing/hoping the value will go down

- I can then buy car back at the demolition derby de-valued price and return it to you, keeping the profit

Only this time:

- Regular Joes started buying every other demolition derby car in the country, making it rare and valuable so I have to pay top dollar to get your car back so I can return it to you and I'm out a bunch of money. 

[Farrar]

It's headed back up. They all moved to other platforms in a giant, collective forget you to Robin Hood. 

There are reasons that this isn't necessarily a "good" thing, but it is a bad thing for some hedge funds, and hedge funds are possible the absolute worst thing about current capitalism (which is really saying something) so I can't find it in me to hate.

[TravelingChris]

Just now, Farrar said:

It's headed back up. They all moved to other platforms in a giant, collective forget you to Robin Hood. 

There are reasons that this isn't necessarily a "good" thing, but it is a bad thing for some hedge funds, and hedge funds are possible the absolute worst thing about current capitalism (which is really saying something) so I can't find it in me to hate.

And Farrar, I am a conservative and I know you are liberal, but hey, this is something we can definitely agree on.

[marbel]

43 minutes ago, Carrie12345 said:

I don’t have a broad or deep understanding of the stock market, but my impression is that the everyday 401k investor who might own some of the particular stocks in question are part of the group benefiting.  They’d be the ones who were “borrowed” from, no???

Maybe, but my understanding is that once the stock crashes, they will suffer the loss.  I think the people benefiting are those whose timing is just right to get in and get out. 

[ericathemom]

1. Say you have a bunch of stock in a company that you plan to hold on to for many years.
2. I ask to borrow some of your stock because I know/hope the company is not doing well
3. I sell that stock, say for $10 each, hopping/planning for that the company continues to decline.
4. I plan to buy the stock again when the price drops, say at $7 each.
5. I then return the stock to you and keep my profits.

However, yesterday, bunches of regular people got wind that the big Hedge Fund had gotten those stocks in the first place. They then went and bought even more stock, driving the prices up. The Hedge Fund had a contract to return the stock at a certain time so had to buy when the price was high. They lost tons of $$,$$$,$$$,$$$ and some little people made a good profit yesterday. The ones who lost money were the people who bought into it later in the scheme, but they likely didn't buy that much. The biggest loser was the Hedge Fund. But, their business model is to play with fire. 🤷‍♀️

[Carrie12345]

1 minute ago, marbel said:

Maybe, but my understanding is that once the stock crashes, they will suffer the loss.  I think the people benefiting are those whose timing is just right to get in and get out. 

But the expectation was for the stock to crash anyway.  So, if it does, no real harm or foul?
(Honestly trying to learn here.)

[ericathemom]

Just now, marbel said:

Maybe, but my understanding is that once the stock crashes, they will suffer the loss.  I think the people benefiting are those whose timing is just right to get in and get out. 

Yeah. There are likely people now who have bunch of over-valued stock. The value of their stock doesn't really reflect the earnings and profit of the company. These people will eventually want to sell those stocks and will lose some money. Hopefully they as individuals are sufficiently diversified to absorb any losses.

My understanding of short selling stock is that it's not at all connected to helping companies; rather, it's profiting while simultaneously kicking a company when it's not doing well.

[Beth S]

My dh & I have been discussing this.
He found this explanation (unattributed at this point) on Twitter:

[vonfirmath]

6 minutes ago, Thatboyofmine said:

Ok, I really don't understand much about hedge funds, stocks, etc, but I do dabble with Robinhood.     Someone tell me, is what is happening with GameStop, etc, good or bad for the actual employees?     

It might be good if it causes more people to realize 1) they exist and 2) They are in danger of going out of business and starts redirecting some of their shopping there.

 

[frogger]

Some would argue that shorting stocks is a mechanism to keep bubbles from growing larger. I have not studied it enough to decide if I agree.

 

Reddit investors are actually colluding and since none of this is based on real value,  there will be losers. 

 

 

 

. 

[HeartString]

I don’t think it hurts the employees at all.  It should just be a regular day with better water cooler talk.  The hedge funds shorted the company for a reason though, whatever those reasons are haven’t changed. A company gets shorted because other companies think it’s stock is going to go down, meaning the other companies see a weakness somewhere. GameStop’s have been closing everywhere for awhile because it’s too hard to compete with Walmart and Amazon for new games and consoles and digital downloads have killed the used game market. We used to go buy used games all the time but haven’t in years.  My husband buys games on the Microsoft store when they have sales now.  So the company is still in that position.  

Edited January 28, 2021 by Cnew02

[Bootsie]

1 hour ago, fraidycat said:

🤷🏻‍♀️ I can't do an explanation any justice, but what I'd like to know is how it was legal in the first place. How they could sell something they didn't own and some of which didn't even exist.

This is what the whole process sounds like to me:

- I borrow your car with the promise to return it in a few months

- I sell the car at current market value... to somebody who will use it in a demolition derby or two, knowing/hoping the value will go down

- I can then buy car back at the demolition derby de-valued price and return it to you, keeping the profit

Only this time:

- Regular Joes started buying every other demolition derby car in the country, making it rare and valuable so I have to pay top dollar to get your car back so I can return it to you and I'm out a bunch of money. 

There is a big difference in borrowing a car and borrowing stock.  The process is more like:

 

I borrow your cup of sugar with the promise to return it in a few months

I sell the cup of sugar to someone

I hope that I can buy sugar at a cheaper price at the grocery store next month than what I sold it for so I can pay you back.

Stocks (like sugar) are fungible--I don't need to buy the same shares back just like you don't expect a neighbor the return the SAME cup of sugar--just the same amount of sugar.

[frogger]

8 minutes ago, Cnew02 said:

I don’t think it hurts the employees at all.  It should just be a regular day with better water cooler talk.  The hedge funds shorted the company for a reason though, whatever those reasons are haven’t changed. A company gets shorted because other companies think it’s stock is going to go down, meaning the other companies see a weakness somewhere. GameStop’s have been closing everywhere for awhile because it’s too hard to compete with Walmart and Amazon for new games and consoles and digital downloads have killed the used game market. We used to go buy used games all the time but haven’t in years.  My husband buys games on the Microsoft store when they have sales now.  So the company is still in that position.  

Do they only deal in used games? I have never been to one.

 

My children mostly use Steam except at Grandma's house because their grandmother has an old Wii if that is any indicator of the market. 😂

[fraidycat]

9 minutes ago, Bootsie said:

There is a big difference in borrowing a car and borrowing stock.  The process is more like:

 

I borrow your cup of sugar with the promise to return it in a few months

I sell the cup of sugar to someone

I hope that I can buy sugar at a cheaper price at the grocery store next month than what I sold it for so I can pay you back.

Stocks (like sugar) are fungible--I don't need to buy the same shares back just like you don't expect a neighbor the return the SAME cup of sugar--just the same amount of sugar.

That makes more sense. 
 

Can you also explain how there is only 1 cup of sugar in the world, but I somehow borrowed 1 cup and sold 1.4 cups? 

Edited January 28, 2021 by fraidycat

[Murphy101]

7 hours ago, Kassia said:

I don't understand any of it, but DH told me ds2 made a lot of money in 24 hours from it.  

 

Best $100 I’ve ever spent in my life. First time I’ve ever bought stocks.  A wonderful example of democracy and capitalism in action. 

Edited January 28, 2021 by Murphy101

[Bootsie]

6 minutes ago, fraidycat said:

That makes more sense. 
 

Can you also explain how there is only 1 cup of sugar in the world, but I somehow borrowed 1 cup and sold 1.4 cups? 

I am on my way to teach my Investments class--and ironically this had been the topic for today when I planned my syllabus several months ago  (short selling--not GameStop in particular) --I will answer this evening after my classes are over.

[vonfirmath]

14 minutes ago, frogger said:

Do they only deal in used games? I have never been to one.

 

My children mostly use Steam except at Grandma's house because their grandmother has an old Wii if that is any indicator of the market. 😂

Nope. They have new stuff too. I got Controllers and a game for my son'sgame system for Christmas. And he got games there for his birthday. Etc.

[Lecka]

We have a membership so we get the magazine.

Its’s not so much of a thing anymore — but used to be the only thing my oldest son cared about reading.

It was very worthwhile for a reluctant reader!

Edited January 28, 2021 by Lecka

[Lecka]

I think the magazine is called Game Informer?

[Lecka]

We used to go to Game Stop all the time, for used games, and new things like Plushies.

My kids have outgrown Plushies (video game themed stuffed animals) and we don’t go like we used to.

When my kids were younger I got used games and 2nd hand game players (I got a used PSP and a used 3DS) and 2nd hand cases and things.

We just don’t find things anymore but in the sense that my kids have gotten too old to want things there.

We would be sad for Game Stop to go out of business and totally get people not wanting them to be shorted and put out of business.

It’s a place where the workers are happy to talk to anybody and chat about games, whether someone is making a purchase or not, and whether someone is buying a used or new game.  They are also great about saying you can get a used game across town or a new game buy driving to a different store.  

Edited January 28, 2021 by Lecka

[Murphy101]

On 1/29/2021 at 3:39 AM, fraidycat said:

🤷🏻‍♀️ I can't do an explanation any justice, but what I'd like to know is how it was legal in the first place. How they could sell something they didn't own and some of which didn't even exist.

It is just as legal as any hedge fund.  Which was the point of Reddit’s outrage. That hedge funds and billionaire investors target companies to purposely propel a decline for those 3rd parties profit. 
 

And I *think* it is illegal to freeze the market sales but only for some buyers/sellers.  I think that on kitty allowing hedge funds to deal to cut off all other buyers is crap that needs investigated.  Either the market is open or it isn’t. But they shouldn’t be allowed to say this hedge fund can mitigate their bad gamble and these other guys can’t. 
 

[Sentence deleted because ugh, don't bring politics into this.]

[JustEm]

3 hours ago, Noreen Claire said:

I have only read a bit about it, but my BFF's college-age kid is about to make in a week of trading what a minimum-wage worker makes in a year of work, so...

only if he sells before this crashes because it will.  My bet is most people who jumped on this bandwagon will not sell in time and will be stuck holding the bag

[HeartString]

35 minutes ago, frogger said:

Do they only deal in used games? I have never been to one.

They have consoles and new games too, but they have to compete with WalMart and Amazon for selling those.  The used games were a good revenue stream for GameStop and it got you in the store.  Now most games are digital and the new consoles have something that makes used games harder to use.  It just harder for a stand-alone video game store to compete with the mega store giants and online retailers.  

[HeartString]

5 minutes ago, Murphy101 said:

nd I *think* it is illegal to freeze the market sales but only for some buyers/sellers.  I think that on kitty allowing hedge funds to deal to cut off all other buyers is crap that needs investigated.  Either the market is open or it isn’t. But they shouldn’t be allowed to say this hedge fund can mitigate their bad gamble and these other guys can’t. 

I’m both shocked and not surprised that they seem to be freezing things to protect the hedge funds.  I don’t have words really.

[JustEm]

I think this is going to be ultimately bad for retail investors.  Regulations aren't going to be put on the hedge funds who created this issue.  It is going to be on the smaller investors who found a way to take advantage of this.

[JustEm]

3 minutes ago, Cnew02 said:

I’m both shocked and not surprised that they seem to be freezing things to protect the hedge funds.  I don’t have words really.

it is absolutely ridiculous

[frogger]

5 minutes ago, hjffkj said:

only if he sells before this crashes because it will.  My bet is most people who jumped on this bandwagon will not sell in time and will be stuck holding the bag

Yes, it is one thing for those who planned this and got in at the beginning but I do worry a lot of people who only bought after things went crazy because it was all over the news will lose out big time. I suppose it will be a lesson and I hope they didn't put their life savings into it.  

[frogger]

7 minutes ago, Cnew02 said:

I’m both shocked and not surprised that they seem to be freezing things to protect the hedge funds.  I don’t have words really.

With a name like Robinhood...

 

I do not know the business model of Robinhood or if they have other things to protect but I'm sure they lost a lot of customers.

 

Edited January 28, 2021 by frogger

[JustEm]

Just now, frogger said:

Yes, it is one thing for those who planned this and got in at the beginning but I do worry a lot of people who only bought after things went crazy because it was all over the news will lose out big time. I suppose it will be a lesson and I hope they didn't put their life savings into it.  

I know at least one person who hopped on a little late and while I know they are up high right now and would do great to sell, they won't.  They are gambling on it going higher.  But when this eventually crashes it will happen so quickly they won't have a chance to get out in time for gains or even to break even.

[Pam in CT]

11 minutes ago, hjffkj said:

only if he sells before this crashes because it will.  My bet is most people who jumped on this bandwagon will not sell in time and will be stuck holding the bag

If it is true that (as reported) more shorts were purchased, than the number of shares that actually exist, this HAS to happen.

As in all forms of gambling, there will be a *handful* of people who come out ahead. Lucky for them!  Use that windfall wisely!

But the house has house advantage.

[JustEm]

1 minute ago, Pam in CT said:

If it is true that (as reported) more shorts were purchased, than the number of shares that actually exist, this HAS to happen.

As in all forms of gambling, there will be a *handful* of people who come out ahead. Lucky for them!  Use that windfall wisely!

But the house has house advantage.

exactly.  The one person I know will be a bag holder because of FOMO.  A few months ago he was lamenting how he sold his shares in AMD to buy a shed for his house a few years ago and if he had held onto that it would have been a 6 figure gain.  So, I imagine he has that in his head as the reason to hold his Gamestop shares.  I'm a big fan of swing trading and do really well with it but I'm wasn't going to touch this stock, not worth the risk.

[Arcadia]

3 hours ago, Noreen Claire said:

I have only read a bit about it, but my BFF's college-age kid is about to make in a week of trading what a minimum-wage worker makes in a year of work, so...

There is still short term capital gains tax on the earnings, as well as brokerage fees to take care of. Still it’s possible to earn big on shorting stocks. A friend who went from engineering to stock trading earned a few thousands per day (before tax) quite consistently but he is also a chain smoker from the stress.

[Murphy101]

nm wrong chain of the thought badly spoken. 

Edited January 28, 2021 by Murphy101

[frogger]

4 minutes ago, Murphy101 said:

Or gained a lot of customers. But it wasn’t just robinhood and Reddit. This spread to discourse and other options too. 

I was referring specifically to their restricting of transactions.  

[Murphy101]

Just now, frogger said:

I was referring specifically to their restricting of transactions.  

Yes. I was having two different conversations at the same time about this and my post was a mess. Sorry. 
 

yes. Robinhood should be investigated. I hope they did lose a lot of business but the question is did they gain a lot of business from hedge funds to make up for it?  Idk yet. I also wonder if they will be the next target for populace investment activism.  Why would they do this? What was their personal profit reasons for this action?

[Ausmumof3]

2 hours ago, frogger said:

Some would argue that shorting stocks is a mechanism to keep bubbles from growing larger. I have not studied it enough to decide if I agree.

 

Reddit investors are actually colluding and since none of this is based on real value,  there will be losers. 

 

 

 

. 

Yes tbis was kinda my worry - a) that somehow it might prove illegal and b) that some people might jump in late without understanding and lose money - which is fine if they are happy to do that just to hurt the hedge fund or whatever I guess

[Ausmumof3]

1 hour ago, frogger said:

Do they only deal in used games? I have never been to one.

 

My children mostly use Steam except at Grandma's house because their grandmother has an old Wii if that is any indicator of the market. 😂

Apparently they own EB games down here 

[frogger]

1 hour ago, fraidycat said:

That makes more sense. 
 

Can you also explain how there is only 1 cup of sugar in the world, but I somehow borrowed 1 cup and sold 1.4 cups? 

 

Maybe someone with more knowledge can answer for real, but since no one has so far: my random guess (someone else chime in here)  is that you borrow stock and sell it but someone or you borrow some of the sold stock to sell.  So it is borrowed twice??

Emphasizing the question mark. LOL

 

 

[Terabith]

Here's Trevor Noah explaining it:  

 

[Arcadia]

1 hour ago, hjffkj said:

exactly.  The one person I know will be a bag holder because of FOMO.  A few months ago he was lamenting how he sold his shares in AMD to buy a shed for his house a few years ago and if he had held onto that it would have been a 6 figure gain. 

The lowest was around $2 and the highest was around $97. The person must be holding a substantial amount of AMD stocks to make that high a gain if he didn’t sell. My husband has AMD stock from the early 2000s because he used to work there and the gain is low.