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

[Starport Seven-Five]

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.

Regular investors can make money off of a market pullback if they know what they're doing. I'm far from an expert and I have approval to write naked calls/puts haha.

 

[JimMIA]

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.

No, I don't think WSB or the short squeeze is bad per se. Hedge funds which depend heavily on shorts are very risky. Losing is an integral part of shorting. "When the game is dozens, dozens is the game."

I do think the Reddit/WSB thing has hurt more than hedge funds. I also think the hedge funds probably got shocked at first, but then probably played the whole thing to their advantage. I'd be willing to bet they've recovered their losses and done very well.

But if average retirement investors are in investments for the long term, they should weather any short-term dips.

I saw a commentary yesterday pointing out (correctly, I think) that both hedge funds and the Reddit/WSB activity are actually tiny fractions of the overall market, and don't really affect anything very much.

The force of the Reddit/WSB thing has been the media attention it has gathered...not the actual money flows. They have gotten a lot of attention, but are probably not that important in the context of the overall market. And this too shall pass.

 

[JimMIA]

Regular investors can make money off of a market pullback if they know what they're doing. I'm far from an expert and I have approval to write naked calls/puts haha.

I do too, but you won't see homey playing that game!

 

[Starport Seven-Five]

I do too, but you won't see homey playing that game!

Same. I made some money selling a few SPY call spreads last week but that's as risky as I get.

 

[JimMIA]

The other point I would make about the hedge fund managers caught in the short squeeze is they know how to get out of bad situations and cut their losses. They still lost, but they're used to that and probably responded quick enough not to get crushed. I know several lost big bucks, but the one who got hit worst got bailed out.

However, the amateurs riding the short squeeze don't have that understanding or experience. When things turn bad, they are not likely to react as quickly or as effectively as the pros who do this for a living. They also don't have the working capital the pros have.

We'll see, but it's a zero-sum game that I think many of the WSB followers are going to lose.

 

[godisney14]

One downside to all of this I’ve read is that hedge funds will now be even less transparent about their holdings and activities. As if their dirty laundry pile wasn’t full enough.

Interestingly, a news I read today said that Melvin got an infusion of cash from existing and new clients. Amazing.

 

[EACarlson]

No, the trading platforms selectively halted BUYING while still allowing SELLING. They cannot just arbitrarily stop trading in that manner. It serves only to tank the stock price, saving the hedge funds while screwing over the other investors. That is very clear market manipulation.

Actually, they can. It's in the Terms & Conditions when you sign up for a Robinhood account. They can prevent buying or selling any issue at any time for any or no reason.

The tiny bit of anarchist in me loves this. But as someone roughly mid-career(i.e. I’m not a boomer but I am getting old) I’m scared to check my 401k!

This probably didn't affect your 401k at all, very few funds are going to have GME, AMC or any of the other stocks that most susceptible to this type of trading. The only way there would be any issue is with the blue chip stocks that the hedge funds would have had to liquidate to cover their losses on the shorts.

I'm waiting to start seeing the stories of the kids that put everything they had in GME at $450 that lose everything when it comes crashing back to earth.

 

[godisney14]

Actually, they can. It's in the Terms & Conditions when you sign up for a Robinhood account. They can prevent buying or selling any issue at any time for any or no reason.

This probably didn't affect your 401k at all, very few funds are going to have GME, AMC or any of the other stocks that most susceptible to this type of trading. The only way there would be any issue is with the blue chip stocks that the hedge funds would have had to liquidate to cover their losses on the shorts.

I'm waiting to start seeing the stories of the kids that put everything they had in GME at $450 that lose everything when it comes crashing back to earth.

This is what RH’s T&C specifically states:
“I understand that Robinhood may, in its discretion, prohibit or restrict the trading of securities, or the substitution of securities, in any of My Accounts.”

A similar language is a part of most every service provider’s terms of use (not just with brokerages and trading platforms).
The distinction that a plaintiff could argue is the intent and consequences of the restrictions.

Then there’s this:
At first, RH said the restrictions were put in place to protect its customers.
Then they said it was because they don’t have enough collateral with the DTCC.

At least get the story straight. Who knows if/when the truth will come out.
If the second case is true, people should probably move away from RH because they’re obviously not up to task to service it’s customer base.

 

[AlohaNow]

One downside to all of this I’ve read is that hedge funds will now be even less transparent about their holdings and activities.

Transparency has never been required of hedge funds. As 'private placements' they are just that, private. Like any closely held corporation or family owned company, there is no requirement to make the records/books public. If hedge funds freak you out, Google up dark pools. 15% of trading comes from dark pools.

 

[godisney14]

Transparency has never been required of hedge funds. As 'private placements' they are just that, private. Like any closely held corporation or family owned company, there is no requirement to make the records/books public. If hedge funds freak you out, Google up dark pools. 15% of trading comes from dark pools.

Umm, duh.
I am completely aware of hedge funds, their objectives and risks.

It seems you haven’t been following the GME/WSB saga. One reason (of many) WSB targeted GME is because Melvin publicized their short bets.

 

[TLSnell1981]

Actually, they can. It's in the Terms & Conditions when you sign up for a Robinhood account. They can prevent buying or selling any issue at any time for any or no reason.

This probably didn't affect your 401k at all, very few funds are going to have GME, AMC or any of the other stocks that most susceptible to this type of trading. The only way there would be any issue is with the blue chip stocks that the hedge funds would have had to liquidate to cover their losses on the shorts.

I'm waiting to start seeing the stories of the kids that put everything they had in GME at $450 that lose everything when it comes crashing back to earth.

It's been an issue.

 

[Starport Seven-Five]

One downside to all of this I’ve read is that hedge funds will now be even less transparent about their holdings and activities. As if their dirty laundry pile wasn’t full enough.

They were only publicizing trades to get other traders on board with their thinking. Funny how when WSBs does that it’s “market manipulation”

 

[JimMIA]

The only way there would be any issue is with the blue chip stocks that the hedge funds would have had to liquidate to cover their losses on the shorts.

And that's exactly what they did. They had no choice -- they had to cover their shorts.

I saw an impact in both solid growth mutual funds and high-quality bond ETF's. Friday alone, the S&P 500 was off 1.93% and the Dow and Nasdaq were both off a little more than 2%. Those percentages don't sound like much to people who don't follow this stuff, but that 2% on the Dow was more than 600 points. My overall portfolio was down 1.5% on Friday.

So yeah, there was an effect far beyond the hedge funds.

 

[TwoMisfits]

And that's exactly what they did. They had no choice -- they had to cover their shorts.

I saw an impact in both solid growth mutual funds and high-quality bond ETF's. Friday alone, the S&P 500 was off 1.93% and the Dow and Nasdaq were both off a little more than 2%. Those percentages don't sound like much to people who don't follow this stuff, but that 2% on the Dow was more than 600 points. My overall portfolio was down 1.5% on Friday.

So yeah, there was an effect far beyond the hedge funds.

I think folks are saying the broader market is in possible bubble territory and a correction is likely to come, so 1-2% down could just be the start of the overdue correction vs anything related to Gamestop...

I think back to the internet bubble of 1999 when my business teacher asked if Value America was worth more than Walmart and why...and then showed us it currently was valued higher in the market, and that type of exuberant behavioral betting was likely to presage at least a market correction...and we had one, within the year...

 

[_19disnA]

I think back to the internet bubble of 1999.......

I remember that too. Back then some people thought anything associated with the internet was a 'can't lose' investment. What mattered was how many people looked at your website vs. silly things like whether or not you actually made revenue/profits. Then it all came crashing down and some couldn't figure out why. I still think the same of bitcoin which is something dreamed up out of thin air................what could possibly go wrong????.................LOL

 

[JimMIA]

Supposedly, silver is their next target:

https://www.cnbc.com/2021/01/31/sil...rs-try-their-squeeze-play-with-the-metal.html

 

[hertamaniac]

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.

One of Tesla's greatest strengths is they now develop, manufacture and integrate their own batteries. When you cut, or minimize, a supplier's output/quality out of the equation, the I.P. and control become your own. And selling that I.P. can be very favorable for a company's profit sheet.

 

[MillauFr]

Interestingly, a news I read today said that Melvin got an infusion of cash from existing and new clients. Amazing.

The big hedge funds and Wall St. banks are always bailed out. Look at what happened with the housing loan debacle. They let one firm fail and bailed out the rest of them.

 

[godisney14]

Supposedly, silver is their next target:

https://www.cnbc.com/2021/01/31/sil...rs-try-their-squeeze-play-with-the-metal.html

Squeezit!
(Thinking back to the 90’s, that was a terrible “juice” that I liked)

I hope WSB will bring to attention all the Street’s massive short bets.

 

[tex1989]

I learned two things today, basically one that is fairly amusing and another that I was not aware of. I was not aware that one of the largest positions held in Gamestop was 9 million shares owned by one of the founders of Chewy.com. They sold out to Petco for a lot of money and he plays the market with a lot of his money.

Secondly a lot of the folks who bought very small lots of Gamestop did so back in November and the reason was that chat started on a gamers chat board that asked the question, "what if we all bought shares of Gamestop, do you think gamers could own the whole thing?" My son in law and his friends, all in their 30's all with good jobs bought small lots of Gamestop at $8 tp 10 a share. He owns 20 shares, sort of bought one day when he said why not?