Is the recent GameStop story highlighting how little stock price is based on reality?

[NYCgrrl]

The stock market has always been a tad irrational (tulip bulb buying in the 1600s immediately comes to mind) and value is a perception of those who buy and sell.

I seriously doubt the actions of a group of small investors is illegal no matter how much torturous thought is put into the argument.

 

[godisney14]

This saga is just bonkers.

After all that was said about why RH discontinued trading and then say that they’re opening back up....RH is now apparently only letting new buyers to purchase a maximum of 5 shares of GME in their portfolios.

RH needs to be seriously investigated deeply.
I mean the fact that AOC and Cruz can agree on something must mean it is seriously worth looking into.

 

[tex1989]

There are a lot of terms and ways to measure value. In the case of Gamestop if you add up all their hard assets, inventory, fixtures, etc there is no way you could sell it all and come close to the total value of the outstanding shares so yes balance sheets make up the difference between that value and the market capitalization. I don't think anyone believes for a moment that they are valued correctly. What this boils down to is supply/demand for shares of the company. Hedge fund borrowed them and then had to pay through the nose to get them to pay back what they owed.

 

[MillauFr]

if you add up all their hard assets, inventory, fixtures, etc there is no way you could sell it all and come close to the total value of the outstanding shares

And if you did that for most companies those hard assets wouldn't amount to more than 1 or 2% of the value of the company. What hard assets to companies like Alphabet, Facebook, Netflix, or Apple have? Some office equipment and a couple of computer servers?

 

[_19disnA]

Tesla is not valued the way it is just as an auto company. They are more than just being an auto manufacturer.

Or at least Tesla wants you to believe that. They are trying to ride the whole 'technology' wave which sure seems a lot to me like that tech bubble so many now seem to have forgotten. Remember when anything associated with the internet was sold as a 'can't lose' investment regardless of whether or not the company turned a profit? Didn't end well for many of them. Frankly, Tesla has no secret to designing/manufacturing cars that makes them any more profitable then other auto companies. Their solar energy business loses money and that is part of the reason they cleverly combined the companies together.

Many of the financial articles only seem to have a superficial knowledge of the industry they are writing about so stories just seem to get passed around with little real research on their part. At least part of the reason that platform is restricting buying of certain stocks is that it takes 2 days to clear and when there are enormous prices swings, it causes an issue in where the extra money will come from. Apparently, selling stock is not an issue since that happens immediately.

The 'mob soccer' mentality of rushing in to buy certain stocks usually ends badly for most everyone. Then I wonder where they go next? How many remember the 'can't lose' stock of Enron until it all came crashing down when it was discovered to be a sham. Or there were people piling into oil futures that made the price of oil go bonkers for a period of time. Bitcoin is yet another one that defies all logic and I can see many people getting burned when it comes crashing down as well.

 

[MillauFr]

RH needs to be seriously investigated deeply.

I think the practice that needs to stop is being able to short 140% of the companies shares. That should be investigated.

 

[godisney14]

I think the practice that needs to stop is being able to short 140% of the companies shares. That should be investigated.

If I had the say, I would also disallow certain derivatives.

 

[TwoMisfits]

I think the practice that needs to stop is being able to short 140% of the companies shares. That should be investigated.

If I had the say, I would also disallow certain derivatives.

Amen to both. The absolute greed by the hedge funds to short more shares than are possible to buy got them here...and that greed has to stop.

If we can add - I'd also ban their work arounds to naked shorting, which apparently they used even though this practice should not be possible.

 

[godisney14]

Or at least Tesla wants you to believe that. They are trying to ride the whole 'technology' wave which sure seems a lot to me like that tech bubble so many now seem to have forgotten. Remember when anything associated with the internet was sold as a 'can't lose' investment regardless of whether or not the company turned a profit? Didn't end well for many of them. Frankly, Tesla has no secret to designing/manufacturing cars that makes them any more profitable then other auto companies. Their solar energy business loses money and that is part of the reason they cleverly combined the companies together.

Many of the financial articles only seem to have a superficial knowledge of the industry they are writing about so stories just seem to get passed around with little real research on their part. At least part of the reason that platform is restricting buying of certain stocks is that it takes 2 days to clear and when there are enormous prices swings, it causes an issue in where the extra money will come from. Apparently, selling stock is not an issue since that happens immediately.

The 'mob soccer' mentality of rushing in to buy certain stocks usually ends badly for most everyone. Then I wonder where they go next? How many remember the 'can't lose' stock of Enron until it all came crashing down when it was discovered to be a sham. Or there were people piling into oil futures that made the price of oil go bonkers for a period of time. Bitcoin is yet another one that defies all logic and I can see many people getting burned when it comes crashing down as well.

Sounds like you’re a very convservatice investor. Which is fine as everyone has their own investment preferences. But, that doesn’t mean Tesla and Bitcoin are not worth what it is to all the people investing in it. And, you can’t compare these to Enron. That company went down quick because of dumb dumbs within the company doing stupid things on purpose.

If you argue that Tesla has no secret to making itself more profitable, you are correct. In fact, they put out a lot of their patents into the public for others to follow.
So, then why does Tesla such an advantage in making and selling EV cars? No other mass market car comes close to the efficiency and value of a Tesla car. Why aren’t these dinosaur car makers doing a better job when they’ve been in the business for much longer span of time.

 

[MillauFr]

Why aren’t these dinosaur car makers doing a better job when they’ve been in the business for much longer span of time.

Actually the only reason Government Motors (GM) is still in business is they got bailed out by the US Government 10 years ago. Otherwise Eddie Lampert would have bought them out of bankruptcy and copied to them what he did to Sears.

 

[SBE2]

GME is trading not investing. IMO, this is what makes markets move, different ideologies on how to make money. The hedge funds got caught by RH and quants...

Some people invest on value, some on momentum. If you are blindly throwing in your life savings to GME at $400 a share because you heard ppl talk about it, you deserve to feel the pain. Individuals need to know their risk tolerance. This is a small dark corner of the market, but it does expose who the man behind the curtain is.

Also, wasn't RH founded by one of these hedge fund billionaires?

 

[DLgal]

You could change the name on those charts to Amazon and the year to 2000. The portion of the company that is valuable today wasn't even invented yet 20 years ago

The difference is that Amazon had potential. Game Stop is a dying business model in an era where most gamers download content. It's akin to that old CD/DVD store The Warehouse. There is no potential for growth with Game Stop.

 

[TwoMisfits]

The difference is that Amazon had potential. Game Stop is a dying business model in an era where most gamers download content. It's akin to that old CD/DVD store The Warehouse. There is no potential for growth with Game Stop.

I wouldn't be so harsh on it...it could take over some of the toy and geek square that will never go away even if games go online...that's not growth, but that could be an income stock type, if they thread the needle...

 

[MillauFr]

The difference is that Amazon had potential. Game Stop is a dying business model in an era where most gamers download content. It's akin to that old CD/DVD store The Warehouse. There is no potential for growth with Game Stop.

I agree that the business of selling gaming consoles and games in a brick and mortar store is a dying business. I think why the stock popped initially is because they hired a new CEO who realizes this and plans to sell off that portion of the business. Remember that Berkshire Hathaway used to be a textile company. Not sure they sell any textiles now days.

 

[DLgal]

I wouldn't be so harsh on it...it could take over some of the toy and geek square that will never go away even if games go online...that's not growth, but that could be an income stock type, if they thread the needle...

Oh, I agree. I like to joke that my family keeps our local stores in business. My husband and son are Toy collectors and they have definitely shifted dramatically into that space.

But there is NO planet on which the stock is worth $450/share.

 

[DLgal]

Sounds like you’re a very convservatice investor. Which is fine as everyone has their own investment preferences. But, that doesn’t mean Tesla and Bitcoin are not worth what it is to all the people investing in it. And, you can’t compare these to Enron. That company went down quick because of dumb dumbs within the company doing stupid things on purpose.

If you argue that Tesla has no secret to making itself more profitable, you are correct. In fact, they put out a lot of their patents into the public for others to follow.
So, then why does Tesla such an advantage in making and selling EV cars? No other mass market car comes close to the efficiency and value of a Tesla car. Why aren’t these dinosaur car makers doing a better job when they’ve been in the business for much longer span of time.

Tesla's value seems to be based on cult following mentality. Nothing more. Their cars have serious quality control issues and terrible reliability ratings.

Heck, the whole GameStop and Dogecoin thing was significantly boosted by Elon Musk making a simple tweet in their favor. Immediate swings upward for both.

A LOT of people who buy into Tesla are just simply huge fanboys. Same can be said for a company like Peloton. It's got that cult following although the product is nothing unique in the exercise industry.

 

[_19disnA]

^^ I agree, it isn't an issue of whether you are a conservative or aggressive investor. Chasing what appears to be the next 'big' thing is more along the lines of trading vs. my idea of investing. The value of companies is partly based on their ability to generate an ongoing income stream/profits from what they do. That is why their tangible assets aren't the only measure of value. Whether they make whiskey, corn chips, chocolate or automobiles they have technology/trade secrets/recipes/formula/patents, etc. (in addition to any fixed assets), that enables them to generate an ongoing income stream which provides a value to investors. Bitcoin is the most obvious example to me of something that has NONE of that. Someone made it up out of thin air and now is peddling it around to others hoping they can keep finding the next person willing to pay more then they did. Great idea until you run out of buyers and then where does the 'value' go???

 

[SBE2]

^^^^Ahh, the Greater Fool Theory.

The CEO of GME should use the influx of capital to invest in how they plan to grow the business away from brick and mortar. Then, some day it may be worth more than what the "shorts" think it will be.

 

[MillauFr]

A LOT of people who buy into Tesla are just simply huge fanboys.

Agreed. I think the same thing could be said of the DisBoards crowd and Disney. There is no rational way you can justify the prices that they charge for some of the souvenirs. I was at Disneyland a few years ago and people were lining up for 4 hours to buy a $25 plastic bucket filled with popcorn that I wouldn't pay 5 cents for. People were dumping them on E*Bay for $100. Who pays $100 for a piece of plastic?

 

[MillauFr]

Oh, I agree. I like to joke that my family keeps our local stores in business.

Ditto. I live in Seattle and like to joke that I prefer to shop at local stores such as Amazon....