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

[ahutton]

It has reminded me how much greed there is. Hedge funds doubling down on the short and driving companies bankrupt is tragic, it hurts the employees of that company who have their future tied to the success of the company.

 

[JimMIA]

^^^^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.

There is no influx of capital to GME unless they issue new shares of stock.

The market trading is all transactions between other accounts, not GME.

 

[MillauFr]

There is no influx of capital to GME unless they issue new shares of stock.

The market trading is all transactions between other accounts, not GME.

I read that a company who had made loans to keep AMC afloat had a clause in the loan that it allowed them to convert their $100m loan into shares of stock. I'm guessing that they were able to convert the loan into shares of stock at a price much lower than AMC shares are currently selling for. They obviously exercised that option.

 

[RamblingMad]

Good write up by Matt Levine over at Bloomberg. I recommend reading his column today.

 

[SBE2]

There is no influx of capital to GME unless they issue new shares of stock.

The market trading is all transactions between other accounts, not GME.

Tis why I am not a CEO... I thought maybe the company could use the increase in stock price to their advantage.

 

[JimMIA]

Tis why I am not a CEO... I thought maybe the company could use the increase in stock price to their advantage.

They actually could, but they don't automatically benefit from rising stock prices.

For example, GME has a lot of debt. Some have suggested a new stock offering to take advantage of the high price and pay off some of the debt with the proceeds of the stock sale.

 

[TwoMisfits]

Right, and the hedge funds are probably praying that Gamestop will pay off debt with a new stock offering, just so they can unwind at whatever price Gamestop sets, which is likely to be a lower overall price than the current market prices and thus a lower loss in the billions to the hedge funds...

 

[RamblingMad]

Right, and the hedge funds are probably praying that Gamestop will pay off debt with a new stock offering, just so they can unwind at whatever price Gamestop sets, which is likely to be a lower overall price than the current market prices and thus a lower loss in the billions to the hedge funds...

But now it’s looking like if they do sell shares, it might be considered securities fraud. So their board has to be careful.

 

[Olaf Myfrenzargay]

When were stock prices ever based on reality,

 

[RamblingMad]

When were stock prices ever based on reality,

The near bottom of crashes.

 

[goofyernmost]

The painful fact of the matter is that Wall Street is a playground for rich people. Since the 1970's more and more people have retirement accounts that are linked to the Stock Market, but are usually moderate to low risk investments that steadily gain value over the years. The big buck wins and losses are mostly the rich and frankly I am not the least bit concerned about how many billionaires lost some parking meter money in this latest foolishness. Politicians try and make people believe that everyone's livelihood is directly connected to the Stock Market, but the truth is that since the crash of 1929 many programs have been put in place that prevent most of the damage to the little guy. It cannot all be avoided but most of it doesn't affect probably 70% of the population. Low income people invest in commodities but they are purchased at the grocery store.

 

[JimMIA]

The painful fact of the matter is that Wall Street is a playground for rich people. Since the 1970's more and more people have retirement accounts that are linked to the Stock Market, but are usually moderate to low risk investments that steadily gain value over the years. The big buck wins and losses are mostly the rich and frankly I am not the least bit concerned about how many billionaires lost some parking meter money in this latest foolishness. Politicians try and make people believe that everyone's livelihood is directly connected to the Stock Market, but the truth is that since the crash of 1929 many programs have been put in place that prevent most of the damage to the little guy. It cannot all be avoided but most of it doesn't affect probably 70% of the population. Low income people invest in commodities but they are purchased at the grocery store.

I agree with most of this, but there certainly has been some collateral damage.

The stock market hates uncertainty and the turmoil of the last few days has been reflected in many places that have nothing to do with the few stocks the Reddit folks were playing in. In the last 3 days, the S&P 500 has fallen nearly 4% due almost entirely to the Reddit-based attack on a few hedge funds.

That kind of a drop affects the retirement plans, IRA's, and 401K's of tens of millions of Americans. If you don't believe that, go take a look at your retirement accounts. Take a look at your mutual funds, and see how they've been hammered. Those funds don't own weak stocks like GME.

So this is doing real damage to "the little guy."

 

[goofyernmost]

I agree with most of this, but there certainly has been some collateral damage.

The stock market hates uncertainty and the turmoil of the last few days has been reflected in many places that have nothing to do with the few stocks the Reddit folks were playing in. In the last 3 days, the S&P 500 has fallen nearly 4% due almost entirely to the Reddit-based attack on a few hedge funds.

That kind of a drop affects the retirement plans, IRA's, and 401K's of tens of millions of Americans. If you don't believe that, go take a look at your retirement accounts. Take a look at your mutual funds, and see how they've been hammered. Those funds don't own weak stocks like GME.

So this is doing real damage to "the little guy."

I did take a look, and so far all it has done is gone up in value. Believe me I am watching it very closely. However, most of my stuff is in low risk. I've never tried to aim for the millionaire overnight investments. I have been watching it since 2013, so a little over 8 years the value has increased by 20K and that's after I have withdrawn 10K. Like I said I decided to stay with low yield stuff which is less sensitive to fluctuations. So even though it can and does affect the little guy, the ones that are feeling it the most are the super rich.

EDIT: I shouldn't have been quite so quick, I got my monthly report today and it appears that I lost about a grand just during that week, but over all through the month it only amounted to $300.00. It started to recover today.

 

[FairestOfThemAll37]

This whole thing has been crazy. I’ve had AMC since it was like $3/share earlier this year. All of a sudden I was getting alerts like mad and the price was insane. The options premiums on those stocks was equally crazy!

Unfortunately the trading subreddits are mostly high risk, high reward types and very few people come around to warn people they’ve lost big. WSB are the craziest of the bunch.

 

[TwoMisfits]

I agree with most of this, but there certainly has been some collateral damage.

The stock market hates uncertainty and the turmoil of the last few days has been reflected in many places that have nothing to do with the few stocks the Reddit folks were playing in. In the last 3 days, the S&P 500 has fallen nearly 4% due almost entirely to the Reddit-based attack on a few hedge funds.

That kind of a drop affects the retirement plans, IRA's, and 401K's of tens of millions of Americans. If you don't believe that, go take a look at your retirement accounts. Take a look at your mutual funds, and see how they've been hammered. Those funds don't own weak stocks like GME.

So this is doing real damage to "the little guy."

I don't know that the last few days are bringing down the market...it's just as likely a normal correction for a wildly hot market from last year...

 

[tex1989]

They actually could, but they don't automatically benefit from rising stock prices.

For example, GME has a lot of debt. Some have suggested a new stock offering to take advantage of the high price and pay off some of the debt with the proceeds of the stock sale.

Legal filings and timing would take to long so this would not help. And while I am happy that the hedge funds got their nose bloodied by this thing the reality is they picked Gamestop because it is in fact a failing business model. The underlying value stinks and as many have said they are the Blockbuster of this time. It's not good business and the reason the hedge funds came after them to begin with.

 

[godisney14]

https://twitter.com/x/status/1355580731980869637

Word!

This is the way.

 

[godisney14]

I agree with most of this, but there certainly has been some collateral damage.

The stock market hates uncertainty and the turmoil of the last few days has been reflected in many places that have nothing to do with the few stocks the Reddit folks were playing in. In the last 3 days, the S&P 500 has fallen nearly 4% due almost entirely to the Reddit-based attack on a few hedge funds.

That kind of a drop affects the retirement plans, IRA's, and 401K's of tens of millions of Americans. If you don't believe that, go take a look at your retirement accounts. Take a look at your mutual funds, and see how they've been hammered. Those funds don't own weak stocks like GME.

So this is doing real damage to "the little guy."

Do you think overall market prices right now are completely justified?
4% pullback is nothing compared to how high the market has come amid closures and a pandemic.

 

[JimMIA]

Do you think overall market prices right now are completely justified?
4% pullback is nothing compared to how high the market has come amid closures and a pandemic.

Yes, I think the overall market is pricey and due for a correction.

I don't consider 3%-4% a correction, though -- and I don't think this move is that correction. I'm expecting -10% or more at some point. Next week is another big earnings week, so that may help or hurt.

I think the 3% drop was mostly a collateral rotational effect as some of these hedge funds sold good stocks to free up cash to cover their shorts. I think those outflows are mostly responsible for the retreat in the overall market, and the reason why I said this is hurting normal people as well at the hedge funds.

The market is also pretty nervous, as you can see from the 33 VIX. The market has been frothy for a while, and that's not going away anytime soon.

 

[godisney14]

Yes, I think the overall market is pricey and due for a correction.

I don't consider 3%-4% a correction, though -- and I don't think this move is that correction. I'm expecting -10% or more at some point. Next week is another big earnings week, so that may help or hurt.

I think the 3% drop was mostly a collateral rotational effect as some of these hedge funds sold good stocks to free up cash to cover their shorts. I think those outflows are mostly responsible for the retreat in the overall market, and the reason why I said this is hurting normal people as well at the hedge funds.

The market is also pretty nervous, as you can see from the 33 VIX. The market has been frothy for a while, and that's not going away anytime soon.

Neither is the most accepted definition of a correction. No one is saying 3-4% is a correction.

Maybe I’m misunderstanding your posts, but it sounds to me when I read your comment as if you’re suggesting WSB is bad for normal people.
Hedge funds are the bane for simple investors.

This market is ripe for huge losses without continued government intervention.
And hedge funds will be right there making money off of that when the time comes.