Why Did Reddit Trigger a GameStop Stock Surge?

[woopydalan]

I've used Zoom and Google Meet before. I didn't feel either one was that much better than the other that I'd want to consistently use that one or pay a premium for it.

My church used Zoom during the pandemic and continues to on a smaller scale now (Sunday service is live and in-person, while some small fellowship meetings are sometimes done on Zoom still). I think I very, very slightly prefer Google Meet over Zoom. But, it could just be familiarity, as I used it pre-pandemic (back when it was also Google Hangouts or whatever it was called).

The familiarity is sometimes a component of what business/stock analysts call a "switching moat." One of the "pains" of switching from one software type to another is the annoyance of having to relearn an entire system or way of doing things. Lazy me would prefer to just use the one I'm already using, unless there is a BIG noticeable improvement in the other one (not that Zoom is tough to use or anything - quite the opposite)...If forced to choose, I'd rather stick with Meet for familiarity and especially if Zoom is going with ads now on their freemium version. I hate ads, so that'd be reason for me also sticking with Meet.

A lot of schools/universities were using zoom as well. I think it has to do with the fact that you don't need an account to log into a room. So minimum amount of work to get kids into the conference room.

 

[woopydalan]

Bitcoin does have the advantage of not being infinitely printable.

Is there a difference between printing more dollars vs. coming out with bitcoin 2.0, 3.0, 4.0, ...?

 

[Office_Shredder]

Is there a difference between printing more dollars vs. coming out with bitcoin 2.0, 3.0, 4.0, ...?

Yes.

Everyone can just agree that Bitcoin 2.0 is not valid currency, so has no effect. If the government prints more dollars, they are effectively indistinguishable, so people can't just choose to ignore them.

Bitcoin 2.0 would be like another baseball card company printing their own cards - people can just decide the original company's cards are the valuable ones, and the new company's cards are not collectible.

 

[woopydalan]

Yes.

Everyone can just agree that Bitcoin 2.0 is not valid currency, so has no effect. If the government prints more dollars, they are effectively indistinguishable, so people can't just choose to ignore them.

Bitcoin 2.0 would be like another baseball card company printing their own cards - people can just decide the original company's cards are the valuable ones, and the new company's cards are not collectible.

Or people decide Bitcoin 2.0 is vastly superior to Bitcoin and now your original bitcoins are worthless

 

[phinds]

Or people decide Bitcoin 2.0 is vastly superior to Bitcoin and now your original bitcoins are worthless

And pigs might learn to fly, but it's unlikely.

 

[woopydalan]

And pigs might learn to fly, but it's unlikely.

Who knows? It was unlikely that bitcoin was ever going to be worth anything, and look where we are today

 

[Office_Shredder]

This isn't any different than like, people might decide Bitcoin is better than us dollars so your dollars become worthless.

It's pretty likely that if a better currency came around, it would include an air drop to current Bitcoin holders so they weren't devalued anyway (or current Ethereum holders, or whatever)

 

[fluidistic]

What do you make of regulation risk - the extreme negative end being government banning of cryptos?

Not sure what the question is about, you mean what effect on cryptos in general? I can only speculate (as you, too). My take is that this won't stop cryptos. For this to happen, all governments on Earth would have to act in unison, effectively preventing absolutely everyone from participating in stacking/mining/trading and saving seedphrases with not a single person kept out, and probably have to erase our memory and everything related to cryptos in general to prevent anyone from recreating it. Not going to happen unless we disappear as a species.

Regulations can make price swings... but hey, no big deal.

 

[fluidistic]

Some random thoughts to "kill cryptos" as we know them today. Government would have to create their own centralized cryptocurrencies and convince us to swap/switch our traditional cryptocurrencies to use theirs. Or try to crack some hardly fixable weakness in a particular cryptocurrency, if that is feasible at all.

Edit: Trash my thoughts in the dustbin. Some people will still want to buy the original "BTC" even if it has no use (in a "pessimistic" future), like a collectible.

 

[kyphysics]

Nice story. I especially like the bit about bonds. Having a small amount in bonds (say 10%) make only a minor difference to returns - sometimes even increasing them. However, the risk is reduced by a not-insignificant amount. One of the strange results of portfolio theory and the efficient frontier.

Morgan Housel (behavioral finance expert and frequent investment writer) has lots of stories of everyday millionaires: teachers, janitors, plumbers, etc. He's fun to listen to (lots of lectures/interviews on YouTube). I like when he contrasts the unexpected millionaires with failed rich people. It gives you a sense of how important principles are. You can have it all, but mismanagement of your personal habits and finances can ruin you.

Speaking of which:


This is a fascinating concept. I don't have the reference off-hand, but there's been statistical work done on Warren Buffett's "secrets to success" and it was found that it wasn't his awesome stock picking or awesome returns (he had the best vehicle to do it with too - a holding company with an operating business(es) generating float with which to invest into stocks - which is a huge advantage over traditional money managers having to deal with client redemptions at the worst times), but rather Warren's lack of huge lingering losses that have contributed to his outsized performance.

I don't know if that was in his mind when he famously said that the first rule of investing is to not lose money and the second rule is to never forget the first rule, but it can be critical to long-term success. If you don't protect yourself, huge lingering drawdowns can ruin your performance. A big cause of that is buying expensive equities that take many years to recover or buying stuff you don't fully understand.

Good reminder for me to not get greedy and start buying cryptos that I don't understand. Gotta stay patient and principled. Don't want to suffer some huge loss.

 

[bhobba]

And pigs might learn to fly, but it's unlikely.

There is no doubt that bitcoin is a high-return, high-risk play, including going out the back door. That is why I have only a tiny amount in a bitcoin ETF and watch it like a hawk. Having only a small percentage of such in your portfolio can increase your returns over the long term with only a slight increase in risk:


How it affects the return and risk depends on correlation with other asset classes. You do not expect (but I have not seen research into this) bitcoin to be correlated with, say, Australian Shares. So including a small amount of bitcoin may be a good thing I am taking the punt.

Interestingly my high growth extremely diversified ETF VDHG (and rigorously managed using Markowitz Portfolio Theory including AI) is still increasing while the rest of the Australian market, including my bitcoin play (CRYP), is declining.

Thanks
Bill

 

[bhobba]

You can have it all, but mismanagement of your personal habits and finances can ruin you.

True.

But the most robust return comes from reducing the risk in your portfolio? OK, invest in the nearly riskless investment, government bonds and see your returns. The best return is to decide on a reasonable risk profile - like high risk with virtually no risk of going out the back door, but not a very high risk with a real chance of going glug glug. Then find the portfolio that gives maximum return long term for that risk.

Thanks
Bill

 

[kyphysics]

and came to roughly about $200/share as an entry point I'd be willing to take a small position in (using no margin of safety).

I've maybe slightly soured on Zoom since...but definitely think they are in much better shape than Peloton.

Wow, $ZM hit my price target today...fell almost 20% in one day.

I did NOT buy. Wondering if growth will be flat to smallish now.

Saw an interesting question posed a while back: Is there any business that wants to subscribe to Zoom that hasn't already? (i.e., Hasn't everyone who would want to use them for enterprise already done so? The whole world knows about them already and nothing is stopping anyone from buying their service.)...If so, growth could be dreadfully slow going forward on the enterprise front.

 

[kyphysics]

As Cathie Woods' $ARKK implodes, Julian Brigden explains why. Will she become the Neil Woodford of the 2020's?

$GME also looks dead. RIP

 

[mfb]

$GME also looks dead.

It's still at 140, far higher than it was before January. It has been around 150 for most of the year now.

 

[kyphysics]

It's still at 140, far higher than it was before January. It has been around 150 for most of the year now.

Yeah, but crashing fast. $136.88 technically.

No plans for profitability as far as I can see. It's a money-losing, meme stock pushed up by short and gamma squeezers. Brick and mortar stores are dying as far as the eye can see. GameStop's business model doesn't offer much in the way of a huge turnaround. It feels the same old, same old. ...Hopes of the new CEO working some kind of new magic have gone out the window now with no new plans.

At least they took the surge in share price to sell equity and play down debts earlier. Other than that, they are a stagnant, money-losing business whose valuation is too high and will get hurt as the Fed tapers its asset purchases and market liquidity dries up I think...Then again, that WSB army is relentless...

 

[bhobba]

No plans for profitability as far as I can see. It's a money-losing, meme stock pushed up by short and gamma squeezers.

Yes. That's what makes me laugh. Value investing has been proven to beat the index and other methods like growth investing:
https://en.wikipedia.org/wiki/Value_investing

Thanks
Bill

 

[kyphysics]

Yes. That's what makes me laugh. Value investing has been proven to beat the index and other methods like growth investing:
https://en.wikipedia.org/wiki/Value_investing

Thanks
Bill

$GME will be interesting for the history books.

It was a ridiculous moment in time that combined social "justice," psychological investing mania, a very smart short squeeze, and a mass of people tangled up in the drama for all sorts of reasons (from the get rich trader to the big Wall Street whales closing rank and backing each other up against the masses and retail investors).

I thought Aswath Damodaran ("The Dean of Valuation") had an interesting valuation of $GME. He could imagine a very optimistic case and every single thing going their way and then some and getting to about $140-ish. But, that was the absolute best case scenario (with some improbable, borderline luck and good fortune sprinkled in).

Sadly, GameStop kinda is a dying company. What does it offer?

 

[kyphysics]

Will these retail investors ever run out of money?

Will the $GME Ponzi-esque scheme ever conclude?

 

[bhobba]

Will these retail investors ever run out of money?

Will the $GME Ponzi-esque scheme ever conclude?

Options trading, when used correctly is a valuable tool for value investors to get paid for trying to get shares at a cheaper price. It is also valuable when selling using covered calls. In fact, people have developed whole systems around this simple idea and value investing:



That is no issue at all. The trouble is when people get together and misuse it like what happened in Gamestop. You can never stop it - people are always trying to come up with get-rich-quick schemes. Trouble is in the share market there are only get rich slowly schemes. I am doing an advanced course on options at the moment from a Wall St trading firm. I thought I knew about options reasonably well - how wrong I was.

Thanks
Bill

 

[russ_watters]

Will these retail investors ever run out of money?

Will the $GME Ponzi-esque scheme ever conclude?

Aunt Carol gave me $50 for Christmas, what else am I going to do with it?

 

[kyphysics]

You can never stop it - people are always trying to come up with get-rich-quick schemes.

I'd be interested to see how these "got rich" folks spent their money.

In behavioral finance, there is something called the "found money effect." If you win the lottery or find money on the ground or something - where you didn't earn it - you're more likely to treat it more liberally and spend it irresponsibly. Whereas, if you earned the money the old fashioned way, you're more likely to respect its value.

It's not what you make, it's what you keep (and increase).

Time will tell who the real winners are. Warren Buffett always says time is the best friend of a great business and the enemy of a bad one. In the short-term, anything can happen. Real winners stand the test of time.

 

[mfb]

Yeah, but crashing fast. $136.88 technically.

$136.6 now. Zero loss in almost a month is not what I would call "crashing fast". It's still very volatile, you can always pick a timespan where it lost something. But it also keeps gaining in between, so focusing on the first only is producing a misleading picture.

 

[Astronuc]

Game Stop may go the way of BlockBuster video, which apparently turned down an opportunity to buy Netlfix for $50 million.
https://www.inc.com/minda-zetlin/ne...marc-randolph-reed-hastings-john-antioco.html

The share price, which opened Friday 0930 EST at $159.77 and ending $140.62 with an intraday low of $132.50, is certainly volatile.

However, in the near term, there is a strategy to turn GME into an NFT marketplace.
GameStop Stock (GME) Up With News of NFT Marketplace Launch
https://moneymorning.com/2022/01/07/gamestop-stock-gme-up-with-news-of-nft-marketplace-launch/

GME's business model is one of entertainment, and like many enterprises, finding ways to extract money from its customers with as little value in return as possible.

 

[scompi]

However, in the near term, there is a strategy to turn GME into an NFT marketplace.
GameStop Stock (GME) Up With News of NFT Marketplace Launch
https://moneymorning.com/2022/01/07/gamestop-stock-gme-up-with-news-of-nft-marketplace-launch/

A desperate move to try to stay relevant. PC gaming today is virtually all digital (via Steam, for example). Sony/PlayStation and Microsoft/Xbox have been trending in that direction over the last few years, now offering digital only consoles.

 

[kyphysics]

$136.6 now. Zero loss in almost a month is not what I would call "crashing fast". It's still very volatile, you can always pick a timespan where it lost something. But it also keeps gaining in between, so focusing on the first only is producing a misleading picture.

When I posted, it had crashed from ~$240 with an uninspiring Q3 earnings release report. For example, they released revenue figures of $1.3 billion in 2021 Q3, while it was $1.4 billion in 2019 Q3. They are still "underwater" to 2019/pre-pandemic sales, while the stock has exploded from like $4 or whatever. Fundamentally, that is crazy.

(I'd rather own Disney, which is still underwater to 2019 revenue/earnings, while its stock price is higher, but at least has a good growth story/path forward w/ streaming vs. GameStop's dying brick-and-mortar biz.)

Thus, it was the combination of those two things that made me say what I said: crash of price from Nov-Dec. of about ~40% and no signs of recovery/growth in relation to elevated stock price.

You can never count out the Reddit army, but I feel like the fizzle is gone with $GME. If the business continues to suck, the fundamentals could just be too bad for even the meme-stock buyers/short squeezers to continue to prop it up.

A desperate move to try to stay relevant. PC gaming today is virtually all digital (via Steam, for example). Sony/PlayStation and Microsoft/Xbox have been trending in that direction over the last few years, now offering digital only consoles.

I previously proposed they just expand their business to include stock trading and/or investing education. They could change the company name to "GameStonk" and have a new section of their stores that focuses on teaching kids investing principles with a ready-made story of $GME's short squeeze rise in 2021.

Maybe offer a trading app like Robinhood. Have local in-store investing club meetings. Charge a membership/store utilization fee of $5/person/month. etc. etc. GameStop's legacy biz is dead, I feel.

 

[mfb]

When I posted, it had crashed from ~$240 with an uninspiring Q3 earnings release report.

You did exactly what I described in the text you quoted. You looked at the past, picked a high point there, and the concluded that it's crashing.
Where was your post when it reached $240, up from $170 a month before, concluding it's going up? Non-existent.

It's going up and down, with no consistent trend since March last year.

 

[kyphysics]

You did exactly what I described in the text you quoted. You looked at the past, picked a high point there, and the concluded that it's crashing.
Where was your post when it reached $240, up from $170 a month before, concluding it's going up? Non-existent.

It's going up and down, with no consistent trend since March last year.

Because there was still a narrative of Cohen, et. al turning GameStop the company around then.

The fundamentals have started to catch up and crystallize more and more. I understand the point you're making, by the way.

I'm simply saying my $240 mark wasn't as arbitrary as you make it to seem for reasons laid out in my post above. THE NARRATIVE now is that GameStop is not a turn-around company.

 

[kyphysics]

$GME down 14% today. The end is near.

 

[russ_watters]

$GME down 14% today. The end is near.

I've given up trying to predict this. It could ride on at $100 a share right up until the day they sell all the furniture at headquarters and take it off the market.

 

[kyphysics]

I've given up trying to predict this. It could ride on at $100 a share right up until the day they sell all the furniture at headquarters and take it off the market.

Fed tightening will likely test the resolve and finances of the Reddit crowd. QE is getting tapered from $120 billion/month (about $1.5 trillion/year) to $0 by mid-March.

That level of liquidity withdrawal is going to hit asset prices with high valuations, at a bare minimum, if not the entire market. If the Fed then decides to announce rate hikes in March, these high-flying growers and/or no-revenue story/meme stocks will get body-bagged imo. I think at bare minimum, the taper to $0 will keep a lid on any speculative fervor in stocks like $GME. Big institutional players are selling growth and rotating into defensives like health care and consumer staples (some financials too, as higher rates help them).

I cannot imagine any big buyers of $GME (institutions and momentum traders are out of this trade)...maybe other than the Reddit crowd...who are probably losing more and more money and may be out of cash if they keep it up. I don't like to see people hurt, but many DESERVE to be broke the way they buy stonks!

 

[Astronuc]

https://finance.yahoo.com/news/game-stop-needs-to-get-it-together-already-analyst-132745223.html
Well - yeah!

This all started when a bunch of Redditors/Redditers got interested in messing with some short sellers of GME and it kind of took off (kind of an artificial resuscitation). I suspect some individuals took advantage of the situation to make some short term gains.

For the 39-weeks ended Oct. 30, GameStop has posted an operating loss of $201.7 million

US News - 8 Reddit Stocks Trending in January
https://finance.yahoo.com/news/8-top-reddit-stocks-gaining-222025808.html

So, expect some volatility. Fundamentals are still fundamentals.

Will it become a matter of Wall Street, or some on Wall Street, or the financial markets will manipulate stocks through Reddit, or simply take advantage of volatility? Will Redditors inadvertently influence/manipulate stock prices?

 

[stefan r]

Fed tightening will likely test the resolve and finances of the Reddit crowd. ...

I cannot imagine any big buyers of $GME (institutions and momentum traders are out of this trade)...maybe other than the Reddit crowd...who are probably losing more and more money and may be out of cash if they keep it up. I don't like to see people hurt, but many DESERVE to be broke the way they buy stonks!

It does not cost anything to buy and hold. Obviously costs the initial purchase but there is no ongoing cash needed.

The options markets are still moving large quantities of money around GME. Bets have been made on options for January 2023 and 2024. The puts and calls are still out there whether or not any new investment comes in.

 

[kyphysics]

It does not cost anything to buy and hold. Obviously costs the initial purchase but there is no ongoing cash needed.

I guess I view some live-at-home-with-parents traders as needing the cash at some point and if they expected to make money and are now losing it, then that could hurt them more than others. Many on WSB post YOLO all-in bets and the subsequent "loss porn." It's a degenerate community in a lot of ways. Gamblers do go broke and I would think the same happens to them.

 

[InkTide]

I guess I view some live-at-home-with-parents traders as needing the cash at some point and if they expected to make money and are now losing it, then that could hurt them more than others. Many on WSB post YOLO all-in bets and the subsequent "loss porn." It's a degenerate community in a lot of ways. Gamblers do go broke and I would think the same happens to them.

Gamblers go broke because casinos have house-favoring probability distributions over a large enough sample size. The scale and depth of publicly available information regarding GME is genuinely unprecedented, and is essentially a bet against the 'house' using their own rules - and they've already demonstrated the capacity to be correct: the spike a year ago was a very painful (for hedge funds) vindication of what was then the retail investors' underlying thesis (which boils down to widespread naked shorting but includes widespread illegal/unethical/manipulative behavior by market makers and the Federal Reserve).

From a broad economics perspective, a publicly accessible market of information with a continually growing number of critical eyes and individual actors behind it and the ability to parse, digest, and disseminate complex information internationally in the span of hours, has come to the remarkably consistent conclusion that it is prudent to bet against the integrity and honesty of a financial market that thinks transactions taking 3 days are fast, made up of a handful of people who were born into generational wealth or climbed to the top of industries by abusing decades of legislative neglect of market monopolization.

The current underlying thesis of retail holding GME still is "all these big players didn't learn their lesson in January 2021."

That's essentially it, but it has picked up an enormous amount of rhetorical fuel from the discovery that shares "owned" in brokers are owned by brokers, not investors, and companies are legally prevented from informing their own shareholders that the only way to actually own their shares without a broker middleman is by directly registering them with their transfer agent, not a broker. It's like buying a gold ingot and instead getting a certificate that will allow you to sell the gold ingot, except it's also illegal for the ingot smithing factory (transfer agent) or the gold miners (company the share is of) to tell you that the certificate is not the same thing as a gold ingot. This is important because not only might that be one of many identical certificates for the same ingot (allows broker lending of shares they own "in your name"), but your certificate may not correspond to any existing gold ingot at all (synthetic shares; supposed to be illegal, but much like naked shorting it's basically unregulated and the legal fines are utterly dwarfed by the profit from breaking the law anyway in the rare instances other fraud fails to prevent getting caught).

IIRC the above example with gold basically happened at some point recently, or it might've been silver - well, minus the 'we made it illegal to talk about this' part.

Brokers and the DTCC are essentially running an I.O.U. coupon scam with the entire publicly traded economy, and until recently had done a decent job of keeping evidence of the scam hidden by making it illegal for companies to educate shareholders about it in the hope that retail investors would remain ignorant of it in perpetuity.

Especially ironic was the legal reasoning used by the DTCC (sort of the host of the aforementioned broker/market maker middlemen) to enshrine that legal restriction - they argued that if shareholders knew, there would be no reason for the DTCC to exist.

Now, thanks to that discovery and the speed of information and persistence of memory in the public information market (i.e. the internet), a potential corollary to the current thesis has become "there is no legitimate reason for the DTCC to exist." This wasn't a factor in January 2021. It is now widely public knowledge, and therefore will basically never not be a factor going forward without structural changes to the market that change the DTCC's relationship to real shares.

What we're dealing with seems, to me at least, to be a severe underestimation in the financial establishment of the capacity of the public as a collective, relying heavily on past historical trends that are not naively applicable to modern contexts.

And if it's wrong? Well, it'll be a fun ride to see how, far from a tragic or depressing one - most people talking about it consider their investment to be an expense unless/until GME squeezes. In other words, it costs them nothing to hold, and they won't sell unless/until a squeeze. If the price goes to pennies, they damn well might buy more.

In perhaps the greatest irony of all of this, according to mainstream economics, even if retail's investment thesis is completely wrong, the very fact that so many believe GME is worth more than its current price means GME becomes worth more than its current price - because the alternative is a market completely divorced from the sentiment of market actors, which would itself be evidence that the market was being manipulated by insiders and retail's thesis wasn't completely wrong. The alternative appears increasingly likely to me.