![]() ![]() But don’t for a minute think they are licking their wounds in defeat. If you own GameStop shares today, you’ve already lost most of your money, you just don’t know it yet. In the end, the losers were the last fools in line, those who owned bubble stocks with no greater fool to sell them to. And we know that it wasn’t the short sellers who lost their money. The mechanism was the same, even if a smaller number of people had access to the internet and so the bubbles were smaller too. Back then, Reddit didn’t exist, so people hyped stocks on Yahoo! Finance boards and other platforms. I started my career as an investor during the tech bubble of the late 1990s. Every bubble in history eventually comes to a point when there just isn’t enough fresh money flowing in to sustain it. We have entered the phase of the bubble when traders can only make money if they find a greater fool who is willing to buy the shares they are trying to sell in hopes of finding an even greater fool to sell the shares to later.įorgive the pun, but at some point, this GameStop greater fool game will stop. No short seller or any self-respecting institutional investors is still in the stock. By now, GameStop shares are entirely the domain of traders and speculators. ![]() This is no proof, but it indicates that the short squeeze is over. In that time frame, trading volume also dropped significantly. ![]() Then, when Robinhood and other platforms briefly blocked traders from buying GameStop, the stock fell more than 60% before it started to recover. Towards the end of last week, it plunged by about two thirds between 26 and 27 January. But there’s an interesting observation embedded in the trading volume of GameStop shares. Without a doubt, the hedge funds that had short positions in GameStop lost a lot of money. There is a net increase in psychic wealth.” We are in the GameStop bezzle now: The short sellers have already won, but the retail traders feel no loss. To me, a bubble’s most interesting phenomenon is what John Kenneth Galbraith called “the bezzle,” or the “period when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. Maureen O’Hara, the 2020 winner of the CFA Institute Research Foundation’s Vertin Award, provided an insightful analysis of the various meanings in a recent Washington Post column. But there are so many different ways to define bubbles. There is no doubt that GameStop is in one right now. This is a particularly important lesson to heed in a bubble. Markets go on all the time and while you might be ahead one day, you can easily lose everything the next. There is no point at which everyone can assess their profits and losses and compare themselves to others. The beauty of investing is that it is a race that has no finish line. Then you have to sell that stock at a profit and lock in those gains. First, you have to buy a stock that then increases in price. The stock has risen 1,642% in 2021.Ī successful trade consists of two actions. Now the retail traders who went into GameStop are celebrating their victory. ![]() On platforms like Robinhood, retail traders pushed the stock ever higher, creating a frenzy that caused both a short squeeze and a gamma squeeze in the options market. Then, retail traders on the subreddit WallStreetBets talked about how they made money betting on GameStop and an avalanche of small trades came in. GameStop was in trouble for a long time and thus a prime target for hedge funds selling shares short in hopes of profiting off the company’s demise. ![]()
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