GameStop Stock or Finally, Hope for my Enron Shares
February 3, 2021In most years, the Gamestop Stock story would be by far the most insane event of the year. Hell, it might be the most insane story of the decade. Sadly, this timeline will not allow any normalcy. Gamestop’s roller coaster stock price didn’t even top January.
Look, I’m not trying to be political. I don’t care what side of the aisle you’re on. If you predicted a shirtless “Shaman” would lead a march into the Capitol, you need to take over for Miss Cleo immediately.
Still, this shouldn’t understate how wild this Gamestop Stock narrative really is. As of Tuesday Night, we may being nearly the end of the highs, but truthfully, I don’t think anyone has a clue.
I won’t pretend I’m knowledgeable on this topic. I’m not exactly a stock man. In fact, I don’t think 99.99% of the population really understands the market. I remember in college, I took a finance course where we had a simulation stock trade in class. It was a digital program with only three options to trade. It was virtually impossible to lose your digital coins.
Needless to say 26 of 30 people went broke in this 20 minute simulation. It was highly concerning as most of these people were finance majors. Remember reader, before meeting with someone for investment advice, ask if they went to school with Bloggin Hood. If so, flip a table or chair as a distraction and run.
Another fun fact about that market simulation: I finished in second place. This is not meant to be a brag. When I head “Nasdaq” my first thought is always Illmatic. There’s sharp people who understand the stock market very well. I’m not one of them.
I only remember I finished in second because I’m competitive to a fault. Had Warren Buffet not taken the class for fun, I think I’d have won. Why did the professor let him use his personal capital? Such bullshit.
While this is far from my comfort zone of angry nonsense blogs, I felt this story was too out there to skip it. How often does a social media message board take out Wall Street and come out ahead?
At least for a week or so. I’m not sure this story will have a Hollywood ending. However, Netflix is already producing a movie about it, so technically, it will. Yay?
The following is my understanding of the story. Remember, if you want to learn about what’s going on, I recommend consulting credible people. Bob Bobberton probably has a good write up on it.
Recap
Melvin Capital, a successful hedge fund (at least as of 2 weeks ago) planned to short Gamestop Stock. This seemed like a reasonable idea. GameStop wasn’t doing very well, and a brick and mortar retail store isn’t exactly the new wave. With digital downloads and every major online store carrying video games, GameStop was on it’s last legs.
Now, I studied shorting stock in that successful, bright finance class, and while I understand the concept and definition, it’s still confusing. Basically, shorting a stock is selling a borrowed share a stock and trying to purchase it soon after at a lower price. If successful, the difference is the profit for the investor. If you short a stock at $50, then are able to buy it at $35, you ultimately profit $15.
There is, of course, significant risk to this practice. Technically, you can make up to your original short price of $50 if the stock bottoms out. However, the risk is infinite. If the stock that you short happens to catch fire and increase dramatically, you will on the hook for the difference. Hypothetically, if a dying game company’s stock were to rise from $5 to $400, that’s quite an expensive short.
Also keep in mind Melvin Capital wasn’t shorting 10 shares of GameStop. They were shorting all of them. Some reports indicated they shorted more than 100% of the available shares which only makes sense to 26 former finance students.
Enter Reddit, a social media platform that has community boards for a vast amount of topics. It’s mainly used for memes.
Oh and some people use it for explicit stuff. So yeah, not exactly a glowing reputation in the Investing Community.
One of their subreddits, WallStreetBets, got word from an investor about Melvin Capital plan to short GameStop. Members of this community began to buy GameStop Stock at an alarming rate, and rather than flip a profit, they held on to it. Over the course of a week (probably longer, but it was roughly a week of media coverage), the stock ballooned. Investors in GameStop Stock were multiplying their money. In fact, the only people not multiplying their money were the Hedge Funds.
Bloggin Hood also failed to turn any profit. See, I told you I’m a bad investor. Currently, my portfolio only has shares of Napster, WorldCom, and the previously mentioned Enron. I also have several Michael Conforto Rookie Cards, so that’s pretty nice.
Of course, there’s plenty more to this story. Probably the biggest wrinkle was Robin Hood, a trading app that marketed itself for being for the smaller investor. Well, last week, when Gamestop stock was spiking, Robin Hood stopped it’s clients from purchasing new shares. In fact, it went as far as to close out people’s GameStop positions without their consent. Last I heard, Robin Hood was allowing individuals to buy one single share of stock. How generous.
Ironically, Robin Hood was going to go public very soon. Something tells me this isn’t the best timing for them. And to think they based their name off my blog. For Shame.
The market reports have been all over the place. Rumors are the hedge funds were down upwards of 50% due to all of their short positions. The reports that they shorted over 100% of the stock seems troubling, if not mathematically possible. There’s been multiple halts of trading, wild accusations, and some rubber band price swings.
Both sides began a standoff heading into last weekend. Redditors could, in theory, turned a huge profit by selling their shares, but many wanted to stick it to the hedge funds. While some probably sold, their mantra is clear. If they hold, eventually the shorts will need to be filled, and the small investors could name their price.
The hedge funds need Reddit to sell their shares ASAP so their can close out their shorts and salvage whatever they can. I’m sure they are also doubling down, whether on other investments, or even on GameStop. Hell, if you already shorted over 100% of the stock, what’s another 20%? I feel like the number of shares should matter way more in this.
As of Tuesday, GameStops stock was down to $90. Early this morning, I checked and it was slightly down. I can’t keep up with the market in real time, so we’ll call it $90 for the post. Note it’ll be different when you read this.
A week ago, if you told me GameStop would cost $90, I would have asked when I traveled back to 2011. Today, it looks like the stock was taken out back and beaten down by Wall Street’s hired goons.
From what I’ve seen, Wallstreetbets intends to hold on, riding this out, likely to the dismay of hedge funds. Then again, if the price dropped to $90, I’m sure some of those hedge funds have recouped some losses and will continue to push their positions.
It only sounds sketchy because it is sketchy.
Listen, I understand this write up wasn’t comprehensive. Bloggin Hood is much better at food takes and complaining.* 1
However, this whole situation has left me with a few takeaways I didn’t expect to have in 2021. Some might be obvious, but again, 4 people out of 30 in my finance class past a market simulation.
The Stock Market and the Economy Are Vastly Different Things
This is probably obvious to everyone with a business degree or access to the internet, but this really dawned on me this past week. Typically, if the economy is doing well, the market will mirror it and vice versa. However, that has not been the case for the past year, and likely a plethora of times throughout Wall Street’s history.
We’re currently in month 11 of the pandemic in the United States. Many people remain unemployed and businesses are hurting. The economy is hurting, and the longer the pandemic lasts, the worse it will get.
Despite this, there’s been times the stock market has skyrocketed. Sure, it’s been down significantly at times this year, including during this GameStop Situation. However, it’s also gone up throughout the pandemic. These are two distinct, but not totally separate entities. There’s no better example than a hedge fund attempting to profit off of a company going out of business.
This leads us to possibly the worst joke in this stie’s history. Buckle up.
What’s the difference between the Stock Market and a Back alley Game of Dice?
Answer: Public Acceptance
Honestly, isn’t the stock market pretty much a white collar casino? Don’t get me wrong, there’s plenty of people with white collars in casinos. But at least there, the odds are the same for everyone – shitty. Only the house wins in the casino in the long run.
For the average person, the stock market has a lot of similarities to a casino. Any investment the average or retail investor,** 2 as an educated guess. He or she is trying to predict a stock that will take off, whether it’s based on past performance, future projections, or Hell, just a gut feeling. It’s not quite gambling, but it’s certainly playing the odds.
Making any trades in the stock market typically have a cost. Most investing apps have a fee per trade, and there may be fees for maintaining an account. Casinos have rakes in some of their games, and the odds will favor the house. Hell, you’re taxed on your earnings in both. Again, I’m not seeing a big difference. In fact, the biggest difference between the two is I don’t get a free trip to the buffet if I lose big in the market.
Then again, I also don’t have to tip the waiter or waitress for a drink in the market either. Hmm… I guess that splits the difference.
GameStop Remains Screwed
I think this is one of the sharpest examples of how the Stock market and Economy differ. Even at $90, Gamestop is probably at it’s highest trading cost in years. It’s stock has never done any better.
This will probably not save the company
Sure, any stockholders, which are likely high level employees are making out well, but the company might barely stave off bankruptcy from this. And its not like people are rushing to GameStop stores anyway.
About this time last year, GameStop was in the news for keeping stores open during the pandemic despite outcries agaisnt it. Now they’re a representative of the little guy. Seems crazy.
Also, let’s not forget this is a company that pays $2 for 5 used games, and sells each for $30. The company isn’t exactly Robin Hood themselves.
That’s probably a bad analogy for this topic.
How will this end?
I hope it’s not going to end badly for the Reddit guys, but since it closed at $90, I’m not sure.
This past week, I’ve seen a lot of tweets and articles showing Wall Street investors saying this isn’t fair to them. In this same time frame, there has been trading stoppages, the Robin Hood app situation and a lot of yo-yo pricing. To me, this seem to benefit the rich investor complaining about the little guy. I don’t know if any of the hedge funds deep in shorts have the power to cause any of these things to happen, but the accusations are running wild.
I don’t know exactly how this will end, but I bet there will be regulations in place to prevent a stock skyrocketing in this manner. Is that fair? I don’t know. On paper, this seems like a counter strategy to a short and doesn’t break any rules. Then again, I re-read the sentence I wrote and still don’t grasp it.
Yes, I wrote it.
I also think any of the Reddit investors needs to be careful. I understand not wanting to hold the line and give in, but you also don’t wan to lose your money either. I’ve seen a few articles on people doing a lot of good with their earnings. Examples including buying video game consoles for Children’s hospitals and being able to pay for family medical treatments. Hopefully, plenty more good comes from this.
I also hope “holding the line” doesn’t cause these people to lose their gains. Personally, I wouldn’t blame anyone who sells to secure necessary money. Wallstreetbets may disagree, but this could be life changing. I would imagine there’s a bunch of ways for professional investors to make their losses back. I don’t think many retail investors are getting this opportunity again.
The Mets are involved
Well, it’s a controversial Stock Market situation, so naturally we have to get invovled.
Since my last post, things stopped being positive and exciting for the Mets. Soon after my thoughts on the Lindor trade, Jared Porter was terminated for being a frigging creep. A story broke that he harassed a reporter, including sending her an unsolicited dick pick. To the Mets credit, he was fired within nine hours of the story breaking. I believe the Mets had no knowledge of this before the hiring, but it’s still not a good look.
I will admit part of the reason I haven’t posted in a while was in the recording, I praised the Porter signing. Now, I had no clue he was a scumbag, but still, not a proud moment.
Just today, another story broke about former manager Mickey Callaway who also was being a creep with several women. This was classified by one victim as “Baseball’s Worst Kept Secret”. Callaway’s actions came to light after Sandy Alderson had to step down from the team for cancer treatments, yet the organization let him finish managing until the end of 2019. Again, the Mets didn’t know about the hiring, but still not good.
I’m not sure how the Mets, and baseball as a whole, fixes this, but they better get this right soon. They can start but interviewing and speaking with women during the hiring process. They also should start hiring women for roles throughout the organization. I mean, I’ve been a Mets fan for 30 years where men have dominated the front office. How has that worked out? A stronger vetting process and more women in prominent places in the organization is a starting point, but the Mets will need more.
Of course, none of that has to do with Gamestop, now does it? Well, I had to address it, especially considering my last post. But we’re not done. Enter, Steve Cohen. Unfortunately, this is not a topic to play Here Comes the Money.
The head of Melvin Capital is a former protege of Cohen. While he began to flounder, Cohen invested $750,000,000 to his hedge fund, which reportedly was wiped out nearly instantaneously. As far as we know, this is the only involvement in the situation, but people began pointing fingers. Cohen, a prominent investor with some celebrity as a baseball owner, became a target.
When Robin Hood stopped trading, the president of Barstool Dave Portnoy, began pointing fingers, and called out Steve Cohen in particular. Portnoy said that Cohen called in the trade halt to save himself and other hedge firms. Cohen defended himself, but not without coming off out of touch. He said “he was just trying to make a living” and that “trading is a tough game”.
He also said he had nothing to do with this and that Robin Hood should answer to their investors. He denied any accusations almost instantly which I guess is a positive. Maybe?
Either way, the publicity damage was done. Cohen’s tweets, including a few before his riff with Portnoy looked like taunts to the average person. Social media began to turn on Cohen, saying some vile things. Cohen ultimately left twitter, citing attacks and threats against his family. The situation turned ugly. We don’t know what, if any involvement Cohen has in this, but he became the figurehead of Wall Street for many Reddit investors. He’s now the enemy.
When Cohen brought the Mets, I was excited to be rid of the Wilpons and have an owner who would spend money. I liked that he interacted with fans. I did not like his questionable trading history. Even today, I read Cohen reopened his hedge fund to new investors, and had somewhere around $1.5 billion new investment capital. He’s a man looking to turn a profit. As a Mets fan, I think we have to separate the team from the owner. We don’t know the whole story, but I don’t think we should put Cohen on a pedestal.
Conclusion
There’s a lot to this story we didn’t talk about, like the AMC shares, CNBC’s questionable coverage (and potential motivations), and dozens of other topics. The fact is, I don’t know the ins and outs of the stock market. Quite honestly, I struggle forming coherent blogs, let alone thoughts on investing. Still, this was too impact, and somehow avoided politics just enough I felt like I had to touch on it. I promise the next article will be something stupid.
It’s what I do best.
