This is Financial Advice
Folding Ideas・2 minutes read
GameStop stock surged due to pandemic impacts and short selling, triggering a retail investor movement with complex financial implications. The story involves market manipulation, conspiracy theories, and failed expectations leading to bankruptcy for some companies, highlighting the risky nature of speculative stock trading.
Insights
- GameStop's stock value surged from $20 to nearly $500 in four days in late January 2021, driven by a combination of market dynamics and external factors like the pandemic's impact on physical retail stores.
- Short selling, a practice where assets are borrowed and sold with the hope of repurchasing them later at a lower price, played a significant role in GameStop's stock surge, leading to a short squeeze that forced short-sellers out of their positions.
- The Apes, mainly retail buyers attracted by the opportunity to challenge Wall Street, played a crucial role in promoting GameStop on social media platforms and engaging in strategies to counter short selling practices.
- Ryan Cohen's involvement with GameStop and Bed Bath and Beyond, aimed at transforming these companies, led to fervent support from the Apes community, despite mixed outcomes and controversies surrounding his actions.
- The Apes' unwavering faith in GameStop and other meme stocks, driven by a belief in the MOASS theory and a desire for wealth and social attention, led to conflicts with traditional stock market norms and a disconnect from the companies' actual financial situations.
Get key ideas from YouTube videos. It’s free
Recent questions
What caused GameStop's stock value to surge in January 2021?
GameStop's stock value surged due to a sudden increase from $20 to nearly $500 in just four days in late January 2021. This surge was primarily driven by a combination of factors, including the worsening situation for physical retail stores during the pandemic, leading many hedge funds to short GameStop in anticipation of further decline. Additionally, the distribution of stimulus packages by governments to counter the economic effects of the pandemic created a sense of hopelessness among the public regarding financial stability, leading to a willingness to take risks.
What is short selling and how does it work in the stock market?
Short selling is a practice where an investor borrows an asset, such as a stock, from a broker and sells it at the current market price with the intention of repurchasing it later at a lower price. The short seller holds onto the full sale value until they return the asset, using it as capital in the interim. Short sellers profit when the asset's price decreases, as they can repurchase it at a lower price. However, short sellers' losses are potentially infinite if the asset's price rises. Short sellers also pay a recurring fee, known as the cost-to-borrow, based on the asset's value, which can erode profits quickly. Holding short positions for extended periods is uncommon due to the risk of high cost-to-borrow fees.
Why did Robinhood disable buying GameStop and other meme stocks?
Robinhood disabled buying GameStop and other meme stocks due to an influx of new users making aggressive plays in the stock market. The CEO of Robinhood cited a liquidity problem as the reason for restricting transactions, as the platform faced challenges in managing the increased trading volume and volatility. This decision sparked controversy and led to a congressional hearing, SEC report, and scrutiny of events, with Melvin Capital needing a bailout due to their reckless short position in GameStop.
Who is Ryan Cohen and what role did he play in GameStop and Bed Bath and Beyond?
Ryan Cohen is an activist investor who aimed to transform GameStop into "the Amazon of gaming." His involvement with GameStop led to wasted capital on closed fulfillment centers, a retraction from global operations, and a non-material NFT marketplace. Cohen's impact as an activist investor elevated him to a messianic role among a passionate fanbase. He also had involvement with Bed Bath and Beyond, triggering a frenzy among investors and a significant price increase. However, his interest in Bed Bath's subsidiary buybuyBABY was based on an outdated evaluation, leading to unrealistic expectations and a controversial divestment after about 9 months.
What led to Bed Bath and Beyond filing for Chapter 11 bankruptcy?
Bed Bath and Beyond filed for Chapter 11 bankruptcy in April 2023 due to financial troubles escalating, leading to a risky deal with Hudson Bay Capital Management known as "death spiral financing." This deal involved buying preferred convertible shares, resulting in massive share dilution and a plummeting stock price. Despite Apes' unwavering faith in the stock, the bankruptcy proceedings showcased the dire financial situation of Bed Bath and Beyond, leading to the company filing for bankruptcy. Despite warnings of common shareholders receiving nothing, Apes remained optimistic, believing the company's assets would still yield profits.
Related videos
Astro Arun Pandit
Adani, Ambani & the Dark Side of Share Market | Ft. Abhishek Kar | The Arun Pandit Show EP 8
Real Vision
Exposing Jack Ma, Big Pharma, and Chinese Fraud (w/ Carson Block)
P R Sundar
Option Buyers AND Sellers - WE ARE ALL TRAPPED!
FRONTLINE PBS | Official
Money, Power and Wall Street, Part One (full documentary) | FRONTLINE
Joma Tech
Let's talk about Tech Layoffs | tech news