GameStop Taking Down A Hedge Fund

[M_B]

5 minutes ago, Rushies tash said:

Another genuine question - would the fee paid to the person whose shares are 'borrowed' negate the losses suffered from their share value nose diving?

You borrow the shares from the market maker (the broker).

[Rushies tash]

7 minutes ago, M_B said:

You borrow the shares from the market maker (the broker).

Does anyone actually hold the shares, or are they created for the transaction? And when they are 'returned' to the broker, are they of a lesser value?

 

Edit: sorry to bother you mate, you just seem to know a lot more about this than most!

[M_B]

I borrow the shares from the broker for a fee. Where the shares come from isn't important to me, but underneath the covers the shares are either held by the broker or the broker borrows them from another trader.

 

I then sell them, but I must return them to the broker before a specific date.

 

The price falls.

 

I buy them back, return them to the broker, and pocket the difference.

 

 

Edit: If the price spikes instead of falls, then I'm f**ked, cause I will have to buy them back at a higher price.

[Rushies tash]

13 minutes ago, M_B said:

I borrow the shares from the broker for a fee. Where the shares come from isn't important to me, but underneath the covers the shares are either held by the broker or the broker borrows them from another trader.

 

I then sell them, but I must return them to the broker before a specific date.

 

The price falls.

 

I buy them back, return them to the broker, and pocket the difference.

 

 

Edit: If the price spikes instead of falls, then I'm f**ked, cause I will have to buy them back at a higher price.

So, with that much at stake, would you say it is in the interests of the person shorting the stock to make sure the share price goes down?

[M_B]

9 minutes ago, Rushies tash said:

So, with that much at stake, would you say it is in the interests of the person shorting the stock to make sure the share price goes down?

You can't 'make sure' the price goes down, the same as you can't 'make sure' the price goes up. That's why its glorified gambling.

 

All you can do is to create seller anxiety amoungst investors by pointing out to them that their investment isn't as sound as they believe it to be. You can only really do that with reasoned facts, because investors will see through bullshit (unless there is a market wide panic going on when everyone is falling over themselves to sell).

 

In the case of GameStop - the shorters pointed out the company has a failing business model. They aren't wrong.

 

Edit: Continuing with GameStop. The share price is now massively overblown and is ripe for shorting. However the broker will charge a fortune to borrow the shares, and there is still no guarantee the price will collapse during your short. So its a massive gamble, but the person who gets their short right is going to make a fortune.

 

 

 

 

[Red Phoenix]

1 hour ago, SasaS said:

What good companies have so far been ran into the ground by shorting? Genuine question.

 

I didn't say "good" companies.

 

Is this a coincidence?

 

Quote

The uptick rule is a trading restriction that states that short selling a stock is only allowed on an uptick.

The rule went into effect in 1938 and was removed when Rule 201 Regulation SHO became effective in 2007.

 

 

https://en.wikipedia.org/wiki/Uptick_rule

 

What happened shortly after?

 

Quote

Forget Bernard Madoff’s $50 billion fraud. The SEC, and the press, should be focused on short-sellers’ attempts to destroy the U.S. banking system, Cramer said.

 

Don’t believe him? Here are the hard numbers, courtesy of a source inside the New York Stock Exchange:

Just in the 12 days leading up to the Nov. 24 Citigroup bailout, short selling accounted for over 49% of the total trading volume in that company’s stock. For JPMorgan Chase, it was 41%. Bank of America: 35%. Goldman Sachs: 40%. Morgan Stanley: 37%. Wachovia: 42%. Wells Fargo: 42%.

As a result, these stocks tumbled anywhere between 69% and 27% over that time period – all because of huge volumes of short selling.

You have to remember that banking is a business built entirely on trust. When shareholders and customers see these stocks plummeting virtually without a bottom, then they pull their money, further exacerbating the problem. And you can see that play out in these financials right up to the Friday before the Citigroup bailout.

On four days in November – the 6th, 10th, 12th and 19th – the shorts accounted for at least 50% of Citi’s trading volume. On one day it was as high as 71%. In that time, the stock cut in half to $6.40. By then panic had set it, and regular investors started selling Citi en masse. In just one day – Nov. 20 to Nov. 21 – the amount of shares sold jumped 1.5 million and the stock finished its near month-long decline at $3.77.

See the pattern? Lack of proper regulation allows short-sellers to hammer down a stock, causing fear among regular investors and customers. These regular investors then continue the selling, further damaging the stock and making the short-sellers a lot of money. Citigroup wasn’t alone, either. This same game played out with JPMorgan, Bank of America and almost all the other big banks. Imagine what would have happened if the government didn’t step in on Monday, Nov. 24.

Cramer didn’t hesitate to point fingers at SEC Chairman Christopher Cox. It was Cox who repealed the uptick rule, which his exactly what’s allowed bear raiders to annihilate stocks. Until there’s a return to regulation on Wall Street, this kind of thing will continue to happen.

If Congress got a hold of these numbers, there’d be an immediate investigation, Cramer said. Because “this is a true scandal, and it came close to wrecking our financial system.”

 

 

How Short-Sellers Almost Destroyed U.S. Banking

 

I know that this has been disputed and it's not the only reason things went to shit but I find it hard to believe it didn't play any type of significant part in what happened.

[M_B]

That was the financial crisis - those banks were exposed because they had over extended their lending to create the debt bubble. Shorting would not have been effective had the banks not f**ked up and manipulated the market in the first place. They got caught with their trousers down.

 

But I do agree that shorting feeds on anxiety and can exaggerate selling in a crisis. I can see the thinking behind suspending it in that scenario.

[Herp McDerp]

There's talk of brokers removing the option to buy GME stock. Robinhood which seems to be popular with the wsb crowd no longer allowing GME shares to be bought. Love me some market manipulation first thing in the morning.

[3 Stacks]

I think this stuff is hilarious. Now Gamestop may not actually have a good business model anymore, but these hedgefunds who think they know everything are constantly wrong on growth and what companies actually offer value, and people are tired of that.

 

All you ever hear is x hedgefund knows this company sucks, this is why this company sucks, we know more than you, short this stock. And then all the other copycats on Wallstreet do the same and the momentum drives these stocks and companies into the ground. This is just the opposite of that phenomenon, driven by regular people, and it's great.

[M_B]

1 minute ago, 3 Stacks said:

I think this stuff is hilarious. Now Gamestop may not actually have a good business model anymore, but these hedgefunds who think they know everything are constantly wrong on growth and what companies actually offer value, and people are tired of that.

 

All you ever hear is x hedgefund knows this company sucks, this is why this company sucks, we know more than you, short this stock. And then all the other copycats on Wallstreet do the same and the momentum drives these stocks and companies into the ground. This is just the opposite of that phenomenon, driven by regular people, and it's great.

Shorting momentum can't drive a viable company into the ground.

 

It is great that regular people are having a go at Wallstreet. Good for them. But also consider that when the share price inevitably tanks, regular people will be left holding losses. It won't be funny anymore for them.

[3 Stacks]

4 minutes ago, M_B said:

Shorting momentum can't drive a viable company into the ground.

 

It is great that regular people are having a go at Wallstreet. Good for them. But also consider that when the share price inevitably tanks, regular people will be left holding losses. It won't be funny anymore for them.

Yeah, that's the stock market. Some people will do the wrong thing, hold on too long and lose. Also, some other guy made 14 million dollars and there are people paying off their mortgages with the money they've made here. So, swings and roundabouts.

[M_B]

1 minute ago, 3 Stacks said:

Yeah, that's the stock market. Some people will do the wrong thing, hold on too long and lose. Also, some other guy made 14 million dollars and there are people paying off their mortgages with the money they've made here. So, swings and roundabouts.

Yeah absolutely - good luck to them, but lets not kid ourselves - The guy who made 14 million and those paying off their mortgages are doing so at the expense of other regular folks who they have persuaded to join in.

[Jairzinho]

5 minutes ago, M_B said:

Yeah absolutely - good luck to them, but lets not kid ourselves - The guy who made 14 million and those paying off their mortgages are doing so at the expense of other regular folks who they have persuaded to join in.

So the billionaires haven't lost a penny?

[3 Stacks]

6 minutes ago, M_B said:

Yeah absolutely - good luck to them, but lets not kid ourselves - The guy who made 14 million and those paying off their mortgages are doing so at the expense of other regular folks who they have persuaded to join in.

Ok, but so what's your solution? That retail investors shouldn't be able to get involved in the stock market and should have no power? People can do their own research and win or lose money off their own accord. Wallstreet doesn't have a monopoly on good information. They lose money and get stuff wrong like the rest of us.

[SasaS]

1 minute ago, 3 Stacks said:

Ok, but so what's your solution? That retail investors shouldn't be able to get involved in the stock market and should have no power? People can do their own research and win or lose money off their own accord. Wallstreet doesn't have a monopoly on good information. They lose money and get stuff wrong like the rest of us.

The problem is, you can only defend the stock price of a (presumably here) bad company for so long. I am all for people defending their investment, but if the value is indeed inflated, it's a losing battle in the long run. If you turn it into a cause, let's stick it to the hedge funders, you only create what is basically a pyramid scheme, with the army of late entrants picking up the tab.

[M_B]

22 minutes ago, Jairzinho said:

So the billionaires haven't lost a penny?

Shorters being forced to close their position certainly have yes.

 

21 minutes ago, 3 Stacks said:

Ok, but so what's your solution? That retail investors shouldn't be able to get involved in the stock market and should have no power? People can do their own research and win or lose money off their own accord. Wallstreet doesn't have a monopoly on information.

There isn't a need for a solution. Shorters got burned by a price reversal - happens a lot.

 

I'm just saying we don't need to get all sanctimonious about evil hedge funds making money out of a legal market mechansim when we're exploiting our fellow man at the same time. If everyone covered the losses of those left holding their dicks when the price collapses - now that would be a real protest. Somehow I don't think they will.

[SasaS]

Several hedge funds apparently lost a lot of money shorting Tesla this year.

[Aventus]

5 minutes ago, SasaS said:

Several hedge funds apparently lost a lot of money shorting Tesla this year.

Tesla doesn't seem to be the most profitable company, considering its share price. 

[3 Stacks]

23 minutes ago, SasaS said:

The problem is, you can only defend the stock price of a (presumably here) bad company for so long. I am all for people defending their investment, but if the value is indeed inflated, it's a losing battle in the long run. If you turn it into a cause, let's stick it to the hedge funders, you only create what is basically a pyramid scheme, with the army of late entrants picking up the tab.

Investing is personal responsibility. You make the decision. If people get in to this at the wrong time, that's on them. But you can't take that decision making ability away.

 

 

 

[3 Stacks]

Also, Gamestop has a right to exist. Are they such a dinosaur that 140% of their stock should get shorted like it did? No. That's ridiculous.

[cochyn]

23 minutes ago, M_B said:

Shorters being forced to close their position certainly have yes.

 

There isn't a need for a solution. Shorters got burned by a price reversal - happens a lot.

 

I'm just saying we don't need to get all sanctimonious about evil hedge funds making money out of a legal market mechansim when we're exploiting our fellow man at the same time. If everyone covered the losses of those left holding their dicks when the price collapses - now that would be a real protest. Somehow I don't think they will.

Shorting isn't the main issue driving this phenomenon (sorry to pick n your post M_B - it was just convenient). It's people's perception that the actions of hedge fund managers is becoming the marker of a companies' value, rather than the actual endeavours of said company.

 

Decades of protectionism and bailouts to financial institutions have exacerbated this situation: The nub is Americans being sick of seeing financial 'experts' living the life of riley whilst their post-industrial hometowns have been hollowed out and people's opportunities and prospects dwindled . You can argue that 'well, the financial markets only follow what happens on the ground'. And yet it doesn't it amplifies it: Look at Tesla - it produces shit cars that break and most people could never afford. In terms of market segment, it's offers no better product than Jaguar.  And yet by 'book/ paper value' it's the most valuable car company in the world because traders have ballooned its value way, way above what it's conceivably worth. The same could be argued for for FAAMG: Collectively 'more valuable' than all other S&P 500 combined. Really?! But high share prices seem inversely proportional to actual jobs and actual prosperity on the ground and in the towns, rusting away since the factories closed and a few clever kids got out and into jobs in fintech....

 

 

[Jairzinho]

41 minutes ago, M_B said:

Shorters being forced to close their position certainly have yes.

 

So it isn't at the expense of regular folk then. 

[Spy Bee]

Here's a very succinct and simple explanation of what played out

 

[Jairzinho]

So basically for regular folk they can either invest loads, dump early enough, and make loads of money, or just buy a tiny amount an join in cunting hedge nonces in the bastard in the knowledge you might end up losing a few quid. 

 

 

[Bjornebye]

8 minutes ago, Spy Bee said:

Here's a very succinct and simple explanation of what played out

 

Anyone else read that in Anthony Bourdains voice?