Over the last few days, you may have been hearing a lot about Gamestop’s stock. Essentially what has happened is that the stock was low in price and heavily shorted by big hedge funds. Then, a Reddit group called r/WallStreetBets had an idea. What if they poured money into that stock, drove it up into the stratosphere to make money, and forced the big hedge funds to cover billions in shorts? As it turns out, their plan worked surprisingly well. The stock, which was at $19.94 on Jan 11, surged up to $469 on Jan 28 (though as of writing, the stock has since began crashing).
As you can imagine, little guys grouping up to play the same games in the market as the big guys do on a daily basis has created a stir. Maybe people (particularly short sellers) are even outraged by it, but one of the people who’s not is financial analyst Charles Payne from Fox News.
“These hedge funds selling this stock, they don’t own the stock, so they borrow it,” Payne explained. “Imagine you borrow a stock that’s trading at $10 and then you drive the share price down and then you buy it back for a dollar. You make the difference, nine bucks. They are allowed to short so much stock. Do you know the amount of stock that was out on GameStop? Let’s just say 100% of the shares that are out, they shorted 140% of the stocks, so they borrowed the same stock over and over, and over, the same shares and sold it into the market. Their job, their mission was to drive GameStop to zero. No one said a word on any financial network, particularly CNBC, which always lets the shorts come on … Wall Street is losing its mind and Wall Street now wants to change the rules of the game because a bunch of people with accounts ranging from $500 to $2,500 are taking down the billionaires.”
Not so long ago, I had a young friend who was just starting to get into the stock market and I told him it wasn’t smart to try to pick which stocks would go up and down because they were being manipulated by billionaires and hedge funds that actually had a certain level of control over these stocks that an ordinary investor like him didn’t have. Now, that ordinary people are getting together and playing the same games as the big boys, are we supposed to be upset? Please.
Author : John Hawkins