Why Did Reddit Trigger a GameStop Stock Surge?

[mfb]

Down about 95 so far this morning. Maybe the kids found a new video game to play over the weekend?

If hedge funds do it then it's investing, if reddit users to the same it's kids playing a video game?

 

[russ_watters]

If hedge funds do it then it's investing, if reddit users to the same it's kids playing a video game?

Yes.

Caveat: I think it is also likely that V50 is right that in part they have been manipulated into playing it.

 

[kyphysics]

Hmmmm.

Shorts are covering. Wallstreetbets community has lots of posts about why they should hold and not sell, b/c hedge funds are using short ladder attacks and trying to make it look like the game is over.

...Has WSB gotten to a point of delusion and paranoia where they could lose it all by holding when the data turns and they're not aware or believing it? https://www.bloomberg.com/news/arti...erest-plummets-in-a-sign-traders-are-covering

 

[mfb]

Yes.

At least you are open about your inconsistent labels.

Caveat: I think it is also likely that V50 is right that in part they have been manipulated into playing it.

I don't see where V50 would have claimed that.

...Has WSB gotten to a point of delusion and paranoia where they could lose it all by holding when the data turns and they're not aware or believing it?

Some have cashed out, at least partially, and made a lot of money. Some will sell soon, some will sell later. Many different people, many different strategies.

 

[russ_watters]

There has been a suggestion that somehow short sales are, while legal, immoral. I'd like people who think this to expound on this.

Are other transactions between willing partners immoral? Why or why not?
If so, which ones? Put and call options?
Is one side of the transaction OK but the other not?
Is it OK for institutions to trade with each other but not individuals?

In short, I am very interested in why people think short sales are wrong, and how this might (or might not) be generalized.

Nobody responded to this. I think I know why, and while I'm not your target audience, I'll respond.

I think it is pretty obvious that a small, mutually agreed upon transaction where neither side is behaving fraudulently or attempting to manipulate the other side can't be unethical/immoral.

Large individual transactions or groups of transactions carry a risk of manipulation, and that's what people are concerned about: the power of large transactions/groups of transactions. What can make those immoral (or illegal) is malicious intent to cause harm to another party.

Clearly, the reddit group is motivated in part by a desire to cause harm (and succeeded), but their actions have been judged by many as a righteous counter-attack: morally acceptable harm.

The hedge funds are being judged to be intending to cause harm to Gamestop and its other investors. My understanding (admittedly thin) is that massive shorts themselves can push a stock down. I'm not sure if a single hedge fund is big enough to cause harm by throwing its own weight around, but maybe multiple hedge funds together would. So the question is; are the coordinating the attack or are they all independently making the same judgement and taking the same action, which together causes harm? I think coordination would be illegal, and if they aren't I don't see how their actions can be judged immoral.

Other possibilities:
Rich = evil.
Predicting bankruptcy = mean.

 

[russ_watters]

At least you are open about your inconsistent labels.

I also label rain and snow differently. Maybe you can comment on that too, or make your point. I'll be more pointed: You are claiming a sameness, so describe the actions that you see that are similar/the same. Because to me it seems pretty clear that many if not most are motivated primarily by a desire to harm the hedge funds and are willing to lose their own money to do it. That's definitely not investing. That's spending money on activism.

Overlapping that group is another group who hopes to make money, but are very new to investing (some even never have before). Some may even think they are investing, but they aren't. Not any more than tossing a piece of crumpled-up paper into a trash can is playing basketball.

[edit] Note, I'm not even calling that "betting", but there is another group that is betting, and I draw a distinction between betting and investing. Remember, the name of the reddit forum is "wallstreetbets". Not "wallstreetinvesting".

Some have cashed out, at least partially, and made a lot of money. Some will sell soon, some will sell later. Many different people, many different strategies.

Yes.

 

[nduka-san]

how about everyone calms down do some yoga or somthing

 

[Bandersnatch]

I don't see how smithing is a good way to chill out.

 

[nduka-san]

I don't see how smithing is a good way to chill out.

something

 

[Vanadium 50]

I don't see how smithing is a good way to chill out.

I dunno, all that banging and pounding? Relieves a lot of tension. And that's not even considering that there's fire involved.

 

[Bandersnatch]

I dunno, all that banging and pounding? Relieves a lot of tension. And that's not even considering that there's fire involved.

I stand corrected. Everybody get an ingot and work on your temper(ing).

 

[Vanadium 50]

Chi del gitano <bang!> I giorni abbella? <bang!> La zingarella! <bang!>

 

[kyphysics]

This was my last straw.

It's insanity!

 

[Vanadium 50]

I think it is also likely that V50 is right that in part they have been manipulated into playing it.

That's a little strong. Maybe "enticed".

You have a bunch of (millions, it seems) unsophisticated investors talking to each other. This conversation is being held at an emotional level, where members dare each other to take on risky positions. Rational thinking is not just ignored, but actively discouraged.

In the classic pump and dump, someone takes an illiquid stock, typically an OTC penny stock, buys it, touts it without disclosing their position (the pump) and then sells it (the dump) after the price rises but before it falls again. Typically, this is "punped" to thousands.

In this case, someone has taken an illiquid stock (GME) and touted it, with a little "stick it to the Man" thrown in. It remains to be seen whether they had a stake in this before, and when they sold it. A pump-and-dump redistributes wealth, but not from the rich to the poor, but from those who got in late to those who got in early.

As I said, it remains to be seen whether this was intentional or a "lucky accident". But if I were going to try a pump and dump, this is exactly the pool of targets I would choose.

 

[russ_watters]

That's a little strong. Maybe "enticed"...

It remains to be seen whether they had a stake in this before, and when they sold it. A pump-and-dump redistributes wealth, but not from the rich to the poor, but from those who got in late to those who got in early.

As I said, it remains to be seen whether this was intentional or a "lucky accident". But if I were going to try a pump and dump, this is exactly the pool of targets I would choose.

I was reading your post at face value, but I guess you aren't sure.

 

[gleem]

What if the holders of put options decide to cover their liability by selling other equities that they owned resulting in driving down the prices of the shares of viable companies. Such a thing happened in 1901 when two investors competed for control of the Northern Pacific Railroad trying to outbid one another drove up the shares from $150 to $1000 in three days that forced put holder to sell holdings in other stocks/bonds they owned causing a panic on Wall Street. A truce was called and it was finally agreed to settle on a strike price of $150.

For the detailed account see https://www.americanheritage.com/jacob-schiff-and-northern-pacific-corner#2

There are two factors always present in the investing world, greed and fear which can interact synergistically to hurt everyone.

 

[Vanadium 50]

but I guess you aren't sure.

It's certainly possible that the order of events was "tout first, buy second". Certainly we will know more when the feds get through with them.

 

[kyphysics]

i wonder how much money was lost in total, and how much money the redditors gained in total?

https://www.cnbc.com/2021/01/31/mel...rcent-after-betting-against-gamestop-wsj.html
Melvin lost 53% in January.
Citadel lost 3% in January.
https://markets.businessinsider.com...sses-on-gamestop-data-shows-2021-1-1030020684
Overall, short-sellers of GME have lost about $19 billion in January.

Unclear how much the WSB crowd won. Smart people have made the case that probably a good chunk of the short squeeze winnings were from big players themselves (not just the Reddit crowd), b/c the rallies in the stock were too huge for just retail to have created (they argue).

 

[russ_watters]

Ended the day down 100, or 31%.

 

[russ_watters]

Unclear how much the WSB crowd won. Smart people have made the case that probably a good chunk of the short squeeze winnings were from big players themselves (not just the Reddit crowd), b/c the rallies in the stock were too huge for just retail to have created (they argue).

I suspect a few early and large participants made a lot, but the vast majority will probably lose, even if the net is positive.

[edit] Assuming those who gained aren't arrested/sued and forced to give it back.

 

[Vanadium 50]

i wonder how much money was lost in total

Not picking on you, but lots of people seem not to understand something very basic. There are two sides to every trade. One guy makes $100 and another guy loses $100. How much was "lost in total'? $100? $0? Some other number? The question doesn't make sense.

One can ask about how an individual trader did, if you know his positions. One can talk about how the money flows, although I am not sure this is useful, as 90% of it flowed from one "Wall Street Fat Cat" to another. As far as the Reddit guys, the money is flowing from people who got in the game late to people who got in early.

 

[Vanadium 50]

Ended the day down 100, or 31%.

And down another 44 to $181 in extended hours trading. I'm looking at the analyst's target prices. They are as low as $1.60. The most bullish analyst sets a price target at $16 based on a belief of an EPS of "only" -0.29 or 1Q21.

 

[kyphysics]

I suspect a few early and large participants made a lot, but the vast majority will probably lose, even if the net is positive.
[edit] Assuming those who gained aren't arrested/sued and forced to give it back.

Saw the following comments on Yahoo! Finance's GME page:

Nice
29 minutes ago
$GME conversation
Guys set a stop loss. Dont trust wsb moderators who created the hype together with roaring kitty.
They bought in couple months ago all together. They erased all other stock posts and start to hype GME so people will jump in. After a huge gain they hyped more so people will buy for higher prices. Created a enemy called Melvin Capital hyped the stock more so people will buy a $4 stock for $300.
Nice
15 minutes ago
$GME conversation
I denied to be a moderator on wsb after they told me there plans in the past. I was in there discord group not with thousands but with a couple guys. Roaring Kitty wsb moderators bought all 6 months ago. Start removing other stock posts and slowly created the hype. After that it was easy. Create an enemy and start pushing people to buy more and more for higher and higher prices.

They also have other accounts where they show 200k 400k losses bought in for high prices. They do this to motivate the rest to not sell and buy for high prices. In there main account they made millions of gains.
ReplyReplies (2)
41
Nice
13 minutes agoReplied to a reaction
$GME conversation
I pumped a lot of alt coins with these moderators in the past. We made on some altcoins 2000% gains. But after a lot of money what i made i was feeling myself guilty because i saw what people lost. Someones huge gains is someones huge loss. 50% of my money i gave to charities to get off that guilty feeling.
Nice
44 minutes ago
$GME conversation
They motivate you with other accounts where they payed $400 for a share to motivate you to hold until the end. It's a game and a group of guys on discord together with roaring kitty start this hype.

All of these guys are holding at least 50,000 shares each and I'm sure when the price goes down to $150 they all will sell at the same day and it will crash hard.

Copied a few posts from this user, who claims he/she was one of the first WSB members and was in on pump and dump schemes previously with the moderators. Who knows if this is true or not, but there does sometimes "feel" (I obviously cannot prove it) like there is a "scammy" element to some WSB posts.

I think a lot of people are probably genuine, but then sometimes there's just an indescribable feel you have that someone is leading you on. The post/story seems a little too contrived. Hard to know, but I wouldn't be surprised if this whole thing did turn out to be a scam from the WSB crew.

The thing about it is, there was also a very smart element to it that combined company fundamentals + squeeze possibilities. Chamath Palihapitiya (billionaire venture capitalist) pointed to this WSB post that sort of started it all:
If you read the original "plan" on WSB, it's pretty technical and well-thought out. Many financial pundits have praised the WSB's analysis of this weakness in hedge funds shorting GME and the willingness to "attack it." Even Michael Burry (he deletes his tweets quickly after posting for some reason), had said last week that one of the elements of this GME situation was a legitimate or plausible turn-around story (with the hiring of Ryan Cohen and move to greater e-commerce). This is mentioned in that post hatching the gamma squeeze plan.

I could see a situation where there was a legitimately good idea investing idea (based on the GME turn-around story + squeeze potential) that then had "pump and dump" fuel added to it in the later stages. That would make most sense for how I am piecing everything together.

But, who knows?

 

[Astronuc]

I heard a discussion earlier this evening that some Redditors bought GameStop (GME) as a protest, but others (looters) got into take advantage of the protest to 'pump and dump', and then after the stock appreciated, others (opportunists) got into take advantage of the volatility.

Still there were those, like a young kid who got ten shares of Gamestop at $6/per share ($60) back on December 30, 2019. The gift was from his mother. The youngster "decided to sell the stock Wednesday evening at over 53 times the value his mother bought it at, cashing in his shares for a tidy $3,200." The mom mentioned that "$2,200 will be deposited in his savings account while the rest will go to future investments."
https://www.wivb.com/news/texas-fifth-grader-cashes-in-gamestop-stock-his-mom-gave-him-2-years-ago/
https://www.marketwatch.com/story/t...ve-him-for-kwanzaa-for-almost-3200-2021-01-28

There may be other stories like that.

 

[russ_watters]

Not picking on you, but lots of people seem not to understand something very basic. There are two sides to every trade. One guy makes $100 and another guy loses $100.

One could argue that each guy makes $0 in the trade...

 

[mfb]

Because to me it seems pretty clear that many if not most are motivated primarily by a desire to harm the hedge funds and are willing to lose their own money to do it. That's definitely not investing. That's spending money on activism.

That's not the impression I get.

Overlapping that group is another group who hopes to make money, but are very new to investing (some even never have before). Some may even think they are investing, but they aren't. Not any more than tossing a piece of crumpled-up paper into a trash can is playing basketball.

Many of these made money. They identified a stock that was shorted like crazy, expected that to break down, invested, and made money when the short squeeze came as expected. Some made millions with relatively modest investments. You dismissed all of that as "playing video games". We must have fundamentally different concepts of playing video games.

Remember, the name of the reddit forum is "wallstreetbets". Not "wallstreetinvesting".

Neither "wall" nor "street" are literal, but "bets" must be?

In this case, someone has taken an illiquid stock (GME) and touted it, with a little "stick it to the Man" thrown in. It remains to be seen whether they had a stake in this before, and when they sold it.

At least for one of them we don't need to wait. Keith Gill/Roaring Kitty made no mystery of their position in the stock they advertised when it was low. They gave frequent updates on it. $53,000 -> $48 million by Jan 27. At least $20 million of that is diversified now, as far as I understand.

 

[russ_watters]

That's not the impression I get.

What impression do you get and where did you get it? Have you browsed reddit in the past week?

Many of these made money.

"Many", yes. Is "many" more than half? Unlikely.

They identified a stock that was shorted like crazy, expected that to break down, invested, and made money when the short squeeze came as expected.

Do you really believe that? What do you think is a reasonable price for a share of Gamestop stock?

You dismissed all of that as "playing video games".

No, not all. I've listed multiple separate groups with separate motivations. The people playing video games is only one of the groups -- albeit I suspect the largest. And, of course, the most important group is the one doing the pumping.

We must have fundamentally different concepts of playing video games.

Dunno - I've been very descriptive in what I think the motivations are, but you haven't, so I have no idea what you think "playing video games" means. Unless the above is what you expect the only/predominant motivation of the "investors" is. Do you really believe it?

Nor have you defined/described what you think "investing" or "betting" is.

Neither "wall" nor "street" are literal, but "bets" must be?

No, it doesn't necessarily have to be, but it is. Again: have you been on reddit lately? Have you browsed the sub? I just scrolled through several hundred posts of a thread, 90% of which said exactly the same thing; "IF HE'S STILL IN, I'M STILL IN". Do you really think they are serious posts? "Investors"? It's not an "investing" forum, and in my view, the title accurately reflects the point of the sub.

Caveat: I disagree that "wall" and "street" aren't literal, but that isn't critical here.

At least for one of them we don't need to wait. Keith Gill/Roaring Kitty made no mystery of their position in the stock they advertised when it was low. They gave frequent updates on it. $53,000 -> $48 million by Jan 27. At least $20 million of that is diversified now, as far as I understand.

Congrats to him/er. We'll have to wait and see if s/he gets arrested for it.

 

[russ_watters]

No, it doesn't necessarily have to be, but it is. Again: have you been on reddit lately? Have you browsed the sub? I just scrolled through several hundred posts of a thread, 90% of which said exactly the same thing; "IF HE'S STILL IN, I'M STILL IN". Do you really think they are serious posts? "Investors"?

Sample of the logic underpinning Friday's valuation of GME:

I'm convinced. I plan to cash-out my 401k and put it all in GME tomorrow. Anyone disagree with my strategy? (How dare you!)

 

[Astronuc]

Sample of the logic underpinning Friday's valuation of GME:

<illogical material removed>

I'm convinced. I plan to cash-out my 401k and put it all in GME tomorrow. Anyone disagree with my strategy? (How dare you!)

GME closing Monday, $225.00 -$100.00 -30.77%

Well Russ, you could be contrarian.

I did read a headline from someone claiming GME should go higher. I'm not sure from what basis though or when then might be.

Maybe Gamestop should go into financial services for Gamers.

 

[russ_watters]

GME closing Monday, $225.00 -$100.00 -30.77%

Well Russ, you could be contrarian.

I did read a headline from someone claiming GME should go higher. I'm not sure from what basis though or when then might be.

Can't tell if sarcastic; contrarian to whom? Does anyone here think GME stock is worth >$100 / share? I'd really be shocked if everyone here didn't agree it isn't.

[edit]
People often say something like "it is worth whatever people are willing to pay"
That's actually a lazy non-answer by people who aren't party to the transaction. Stock values are expected to change over time. The person selling believes it is or will be worth less than the sale price and the person buying believes it is or will be worth more. Each of them have a reason for their belief, and only the seller could believe "it is worth whatever people are willing to pay" because the buyer is the guy he's talking about. The buyer must have an actual reason for being willing to pay it based on a future expected price.

 

[mfb]

What impression do you get and where did you get it? Have you browsed reddit in the past week?

I get the impression that it is far more mixed. Many people are in for irrational reasons, but that doesn't mean they are into harm the hedge funds. Irrational belief that they are likely to make more money is another option.
Yes I have browsed reddit last week.

Many of these made money.

"Many", yes. Is "many" more than half? Unlikely.

I don't think I have enough information to make or judge such a statement, so I won't.

Do you really believe that? What do you think is a reasonable price for a share of Gamestop stock?

Far lower than the current price, obviously. That's not the question. You don't need a stock to multiply its value by 100 to profit from it.

No, not all.

Well, at least you posted the statement without a qualifier. It certainly didn't read like a statement about a more limited group.

Nor have you defined/described what you think "investing" or "betting" is.

I'm not playing this silly game again.

Again: have you been on reddit lately? Have you browsed the sub? I just scrolled through several hundred posts of a thread, 90% of which said exactly the same thing; "IF HE'S STILL IN, I'M STILL IN". Do you really think they are serious posts? "Investors"? It's not an "investing" forum, and in my view, the title accurately reflects the point of the sub.

The posts on the sub are not representative of actual stock transactions.

Caveat: I disagree that "wall" and "street" aren't literal, but that isn't critical here.

Users in WSB are not anywhere close to a wall, and they don't trade on a literal street either. Sure, both of them have a historic origin, but if you say "Wall Street" today you neither refer to the fort that gave the street the name, nor the physical street that gave the stock exchange its common name.

 

[phinds]

Part of a Bloomberg article this evening:

Carson Block, the activist short-seller famous for targeting Chinese frauds, recognizes familiar behavior in the rally of shares such as GameStop Corp. To him, the parabolic moves look less like the product of Reddit-driven retail orders than a short squeeze by hedge funds targeting other hedge funds.

“I’ve wondered, is there coordination with these hedge funds?” Block said in an interview on Bloomberg Television. “What constitutes coordination? Did they cross the line? That could be interesting.”

For the moment, it’s an unproven theory. But if Block is right, what seemed like a history-making retail uprising last week was just as much a convenient smokescreen for internecine hedge-fund warfare.

 

[russ_watters]

I get the impression that it is far more mixed.

Given that you presented my opinion as an all-or-nothing when it isn't, we may disagree less than you have indicated.

Many people are in for irrational reasons, but that doesn't mean they are into harm the hedge funds.

That's a twisted and inverted phrasing so I can't tell if you agree or disagree. Untwisting: do you agree that many people are in it to harm the hedge funds?

Irrational belief that they are likely to make more money is another option.

Agreed. I mentioned that.

Yes I have browsed reddit last week.

Good to know...

I don't think I have enough information to make or judge such a statement, so I won't.

Ok...so, your statement that I quoted was a throw-away, then? Completely lacking in meaning or value?

Far lower than the current price, obviously. That's not the question. You don't need a stock to multiply its value by 100 to profit from it.

That's exactly the question. Again, I think you're disagreeing to agree. But here's what you said:

"They identified a stock that was shorted like crazy, expected that to break down, invested, and made money when the short squeeze came as expected."

And here's what I just quoted from reddit:

"IF HE'S STILL IN, I'M STILL IN"

Do you honestly believe someone who makes a post like that set a mental value for GME stock? I don't think you do. I don't think someone who says that even knows what "shorted like crazy" means, and I suspect you don't think they do either.

Well, at least you posted the statement without a qualifier. It certainly didn't read like a statement about a more limited group.

Well;
1. I've made other posts in this thread that provide context/explanation to my position.
2. Market movers don't make up the entirety of people buying/selling stocks.

I'm not playing this silly game again.

Frankly, I consider your last few responses to me silly games. You're in attack mode for a reason I think I know, attacking to defend a position you won't state. I think it would be a lot easier for both of us if you would explicitly state your opinion in response to my explicitly stated opinion and then we could peacefully/respectfully agree to disagree.

The posts on the sub are not representative of actual stock transactions.

If you have information to support that, I'd like to see it. Perhaps more to the point, some post actual screenshots from their portfolio trackers...or so we're led to believe. If you have information that those are falsified, I'd really love to see it.

Note: I'll not assume your statement was meant to be absolute. Hint.

[edit]
Well, at face value that's false -- this entire incident is openly reported/acknowledged to be based on reddit hype. Unless you are claiming that the reddit hype is a follower of a movement that started elsewhere, but I don't think you are.

Users in WSB are not anywhere close to a wall, and they don't trade on a literal street either. Sure, both of them have a historic origin, but if you say "Wall Street" today you neither refer to the fort that gave the street the name, nor the physical street that gave the stock exchange its common name.

So you acknowledge it is an actual street, named for an actual wall, and presumably you are aware that the New York Stock Exchange is located on that street (and GME is traded on the NYSE). And many of the investment firms who trade there are located there. So you chose to pick this argument because people can access the market remotely? Seriously? Why are you doing this? I don't want to be in such an argument.

 

[Astronuc]

Can't tell if sarcastic; contrarian to whom?

I thought from my 'Haha' response to one's post, one could tell I was being sarcastic. Contrarian to those who believe the stock price will fall.

Based on normal stats, the stock price should probably be around $10 or less per share. Earnings per share -$4.22, Ex-Dividend Date March 14, 2019, so it's situation is precarious. To survive, they would have to change their business model.

Before hours this morning, the stock prices is $140 or less.

 

[Vanadium 50]

To survive, they would have to change their business model.

One might want to buy even if they thought it wouldn't survive. The Merrill Lynch analyst set a target at$1.60, which would value the company at $110M. Is the brand name and 5500 store leases worth that? No idea - but I wouldn't dismiss it as impossible. I could easily imagine a company looking to expand its physical footprint might find this appealing.