I’m sure everyone has seen the story about Gamestop and others in the past few days. I’m sure everyone will see more in the next few days and weeks. If not, here’s just one of the dozens of stories.
I couldn’t possibly love this more because it’s basically retail investors (lots of folks on Robinhood – if you want to join here’s my affiliate link; and Webull – my affiliate link for that is here. If you join we’ll both get free random stock shares) screwing hedge funds (basically the worst of the worst in predatory financial services) with their pants on, and with their own methods. Hedges have for decades shorted companies to extort them for access (or cash), take them over, or just to drive prices down so they could enter more cheaply. They could do it because hedges rarely raid each other, and even hedges would need to coordinate to prompt a short squeeze like we’re seeing. But now with thousands or tens of thousands of retail investors taking advantage of a short squeeze method they can (like a school of piranha eating a cow in seconds) suck the wealth right out of the hedges.
The hand-wringing and pearl-clutching has already started, but don’t let it fool you. The Stonks short raiders aren’t doing anything illegal or immoral. They’re taking advantage of the hedges’ arrogance and poor risk management to relieve them of their ill-gotten gains, which is exactly how the system should work. You take on risk for greater profit you need to accept when your risky behavior means someone takes advantage of your foolishness and makes you pay for it. So don’t fall for the ‘market manipulation’ media and hedge fund talking points. And don’t fall for the ‘I’m not sure they (retail investors) know what they’re doing’ paternalism crap either. The Stonk short raiders know exactly what they’re doing – taking advantage of poor risk management and mathematical advantage to make a ton of money at someone’s expense. A time-honored Wall Street story. The big players are just going to object to it because they’re on the stinky end of that particular stick for a change.
Where we go from here is an interesting question, and I think it will take a while to play out. Now that larger groups of people are entering this kind of trade I think we’ll see more of these short squeezes play out in coming days and weeks. Some platforms will shut down trading (TD Ameritrade already has) but they’re going to lose customers wholesale since they’re not restricting anything illegal – they’re just costing their customers piles of money. With enough people playing this game the most-shorted stocks could all be in play for this methodology and it’ll be good to see a bunch of hedge funds go boom behind it.
In any case – will be really fun to watch! Just wish I had funded my robinhood account at the beginning of the year. Ah well, fun to watch from the sidelines too!
