Why Did Reddit Trigger a GameStop Stock Surge?

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SUMMARY

The GameStop stock surge from $20 to $350 was primarily driven by Reddit users from the WallStreetBets community who sought to counteract bearish hedge fund positions. This unprecedented movement resulted in significant financial losses for hedge funds while generating substantial paper gains for retail investors. The situation highlighted systemic issues within the trading ecosystem, including the role of platforms like Robinhood, which halted trading on affected stocks. The discussion also raised ethical questions regarding market manipulation and the implications for companies like GameStop, which face existential threats amidst this volatility.

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  • #781
kyphysics said:
Some of those growth meme stocks could be huge...
Bear in mind the title of this thread. Buying shares of a stock because one expects the company to do much better in the future is a very different thing from buying shares of a stock to try to attack a hedge fund. One needs to think hard about what they are really expecting the company to do and why they are buying the stock.
 
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  • #782
Here's a good article on what we're talking about, specific to GME*:
https://www.fool.com/investing/2022/03/19/gamestop-bulls-making-3-mistakes/

Somebody looking to potentially buy some GME or any other meme stock today has to either identify a growth opportunity or see it as a cost of warfare. I'll set aside the second and focus on the first. What are GME's prospects for growth? There's two basic possibilities:
  1. Another meme-fueled frenzy pump-and-dump. If you expect that, you can get in now so you can dump at the peak of the bubble before it crashes again.
  2. GME is going to become a much healthier/more profitable company than it is today (the usual reason people buy a stock).
For #2; Gamestop is not a complicated company. As the article says, their prospects for survival are decent, but surviving isn't thriving. In order to thrive, they'll need to fundamentally change what they are as a company. Maybe they can, but they haven't shown a good reason to believe they will. The article mentions a foray into NFTs, but it was written before that crashed (oops).

*fool does a lot of shady clickbait advertising, so it's rare I'd say that about one of their articles...
 
  • #783
Not a fan of Motley Fool, b/c the depth of analysis in their articles is often lacking.

I'm talking about the freemium stuff, though, as I don't subscribe to their paid offerings. The free stuff often has only qualitative points that are often obvious already and a lack of quantitative valuation analysis.

This is maybe slight hyperbole, but you could easily get an article like this:

"Three Reasons to Buy Disney Stock Right Now"
Disney's earnings have taken a hit lately, due to the pandemic shutdown of parks. Once the pandemic is over and parks reopen, earnings shall rebound.
Disney+'s subscribers are growing at a pace faster than Netflix's early adoption and may overtake them in total subs within three years.
Disney's moat is unassailable in the content industry. Whether 5, 10, or 15 years from now, Disney will still be around and the leader in the industry of family and kid entertainment.

I usually roll my eyes. I could have written that! There's no quantitative analysis/ valuation done. All points are obvious. There's no bear case. . . .A middle-schooler reading the news or watching CNBC could have written this.

Here is an ACTUAL Motley Fool article perhaps not too far away from this hyperbolic version:

Why I Bought Disney at Its High​

https://www.fool.com/investing/2021/04/27/why-i-bought-disney-at-its-high/

I thought the author was a moron for ignoring valuation and certainly didn't take her advice. I personally bought when it got to $93 this year (it's been oscillating between $90 and $100 lately) vs. the $200 she paid.

Very rarely will I find an article I like on MF. I prefer Seeking Alpha, but don't always agree with them either. But, I feel the articles are much better.
 
  • #784
russ_watters said:
Bear in mind the title of this thread. Buying shares of a stock because one expects the company to do much better in the future is a very different thing from buying shares of a stock to try to attack a hedge fund. One needs to think hard about what they are really expecting the company to do and why they are buying the stock.
I guess I lump "growth stocks" (Snapchat, Shopify, Square/Block, etc.) that got out of control into the category of "meme stocks" too (Gamestop, Bed Bath and Beyond...airlines...cruise ships, etc.).

But, yeah, I agree there's a difference. One at least has a viable business that might grow into its valuation...the other is used for attacking hedge funds and/or was a retail investor meme/popularity play.
 
  • #785
kyphysics said:
Snapchat stock was $83.11 recently and fell to $9.34. Almost a 90% drop.

Wonder if it'll get back to $83.11 by 2030?
now it's $7.91 afterhours...who wants to do the rebound math?
 
  • #786
kyphysics said:
Always fascinating stuff. Fun to think about.

Snapchat stock was $83.11 recently and fell to $9.34. Almost a 90% drop.

Wonder if it'll get back to $83.11 by 2030?

kyphysics said:
now it's $7.91 afterhours...who wants to do the rebound math?
sure, it only needs to go up around 5%

after a 10-1 reverse split
 
  • #787
Twilio - from $425 to $42.74 in a little over a year.

Has anyone witnessed this sort of devastation with so many growth and meme stocks since the Dot Com bust? Was 2008 like this?
 
  • #789
Kodak
1667655850558.png
 
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  • #791
So, the idea is tht if there is some sort of corporate meeting, everyone gets together and chomps popcorn while the CEO blathers on over Zoom?
 
  • #792
Vanadium 50 said:
So, the idea is tht if there is some sort of corporate meeting, everyone gets together and chomps popcorn while the CEO blathers on over Zoom?
Apparently. I heard some comment about "enhancing the participants experience".

I strongly dislike some stranger deciding how they will 'enhance my experience'. I'll decide how I will enhance my experience - not someone else - thank you vary much.

Maybe they could get Peleton involved somehow. They could ride their indoor cycles, chomp popcorn and listen to CEO blather.
 
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  • #793
Well, maybe they could do a double-feature with a X-rated movie. "Our profits aren't the only thing that's obscene!"
 
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  • #794
Elon Musk’s tenure at Twitter got even bumpier on Thursday, as he reportedly told employees during an emergency all-hands meeting that he can't rule out the company filing for bankruptcy in the next year.
https://finance.yahoo.com/news/musk...ce-bankruptcy-next-year-report-221322212.html

I've heard the same story from a variety of sources. I have to wonder about a CEO or owner who muses publicly about a failing company.
 
  • #795
Astronuc said:
I've heard the same story from a variety of sources. I have to wonder about a CEO or owner who muses publicly about a failing company.

I think what is going on in Elon's mind is anybody's guess, but we can make a reasonable hypothesis. Both where I am in Australia and the US, we have free speech guaranteed by law (with a few necessary caveats). When Twitter was asked to explain exactly how some banned people breach those caveats, you get answers like, such as in the case of Jordan Peterson; 'for hateful conduct'. Who decides what is hateful and what is not? It looked to many somewhat arbitrary to the point Elon felt those making the decisions were simply doing it based on their biases. This irked him to the point he spent a fortune buying Twitter so he can have the last laugh about an issue that annoys him. Witness going into Twitter carrying a sink. You are on notice - I am in charge now, and what I say is how Twitter will be run. I suspect putting the bogyman of bankruptcy on the table is just another tool he is using to bring home to all employees - the times they are changing.

For what it is worth, IMHO, when Twitter makes a decision, some think is not reasonable, then call it out. Jordan Peterson, who has a large following, did just that. They either must tackle Jordan's arguments (not easy to do as he is good at arguing his position) or ignore him and leave people to think they can't counter them. Its credibility sufferers and market forces will eventually force a change or it will not survive. Just a personal view. Maybe Elon just wants to hasten it along and hopes the forum will gain in popularity by changing how it is run so he can make some money - although I believe that is a long shot. Still one never knows.

Thanks
Bill
 
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  • #796
I see that AMC is now down to $4, GME is down to $16, and Robinhood is below $9. Gravity wins again.
 
  • #797
phinds said:
I see that AMC is now down to $4, GME is down to $16, and Robinhood is below $9. Gravity wins again.

Nobody can predict the gyrations of the market except in statistical terms eg over the long term the market goes up. That is how all legit market strategies work, even just dollar cost averaging into an index fund. For a different approach on the same theme, see the following:


It relies on the fact that over a long period, 90% of the time, the market is greater 65 days at any point regardless of market conditions. However, its long-term profit is about 20% pa, with scary volatility. It is so volatile one of its rules is you only trade it with 10% of your capital.

It does not give the figures for last year, which was a bear market. It lost about 200%. But the previous year made about 500%. See what I mean by volatile? That 20% overall is based on a trade size of 10%.

If you have the guts to try it, it does have the advantage of the other 90% of your capital can be put in a high-interest/distribution account or ETF (eg PUTW), or you can do it on option margin ie your option buying power is twice any other assets you may hold. If you have a large account some brokers will give a much greater margin.

Thanks
Bill
 
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  • #798
phinds said:
I see that AMC is now down to $4, GME is down to $16, and Robinhood is below $9. Gravity wins again.
It's still down a lot from the high, but above what it was before being memified: note that GME had a 4:1 split.
 
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  • #800
But stonks only go up!

I'm not sure what is cause and effect here. GME missed analyst expectation s by 10% and is continuing their revolving door CEO um....tradition. Which is Wall Street reacting to?

They are down 17% - that's not a crazy amount on missing earnings by 10%, especially as revenues continue to slide. GME doesn't pay a dividend, so a rationl investor will buy the stock only if they believe it will appreciate faster than a safe investment, like US Treasuries. Those are running at about 4.5% now.

Does GME look like it will do better than that? Apparently fewer and fewer people think so.
 
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  • #801


Will there be a Physics Forum watch party for this film?
 
  • #802

GameStop shorts dealt $1.4 billion paper losses in meme revival​


GameStop stock gains more than 70%, gets halted for volatility after 'Roaring Kitty' post​


GME 2.0?
GME GameStop Corp.30.98+13.52+77.44%

Really? Again?

At Monday’s opening bell it appeared that Gill had reignited the phenomenon as shares of GameStop more than doubled. At midday, shares were trading 60% higher. It’s the biggest intraday trading jump for GameStop since the meme craze of early 2021. Other meme stocks like the theater chain AMC were jolted higher as well.

Trading in GameStop was halted eight times before noon on Monday due to volatility.
https://apnews.com/article/meme-roaring-kitty-gamestop-amc-stocks-401916acd3715d35cc0220143b26b2ac
 
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  • #803
The stock fell 30% today.
That makes it P/E 1260. It was roughly twice that at its recent peak.
 
  • #804
So, one can say "Look, the meme-stockers were able to prop up GameStop yet again", well, maybe. That's not what happened with Bed Bath and Beyond...who is now in the Great Beyond. And AMC is still troubled.

Propping up a stock costs money. I think people are losing their interest in losing money to do this. Ironically, if they were willing to pay somewhat higher pricves for games and buy some more of them, GameStop would be better off.
 
  • #805
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  • #806
I am not sure what 1Q sales tells us. They typically make money only in 4Q of a given year. Obviously, they are related, since if there isn't enough profit in the good quarter to make up for the losses in the other 3, that's a problem.

But its not really so complicated. It costs them 97 cents to bring in every dollar. That's too much out for too little in.
 
  • #808
Astronuc said:
Stock manipulation?
Of course. Since GME pays no dividend, the only way to make money is to sell it later for me. Whether this is legal or not, I can't say, but since the 1st transaction has taken place and the 2nd has not, this looks hard to prosecute.

The options, however, are another matter. The more he can drive up the price by the 21st, the more money he will make. This looks more troublesome.
 
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  • #809
On Monday, GameStop shares sank about 12% to $24.83, following a dive of nearly 40% on Friday after the company reported a drop in quarterly sales.
https://finance.yahoo.com/news/gamestop-tumbles-second-day-meme-173500703.html

Also on Friday, GameStop said it would sell up to 75 million shares, days after it made $933 million by selling 45 million shares.

Gill acquired 5 million shares of GameStop at an average price of $21.274, according to details he shared on social media. In addition, he bought 120,000 GameStop June 21 call options at a strike price of $20 at $5.6754 per contract. Reuters was unable to verify the size and value of his holdings.

On Monday afternoon, the options contracts were changing hands at $6.40 a contract, according to LSEG data.

Other so-called meme stocks also gave back recent gains on Monday, with AMC Entertainment losing nearly 7% and headphone seller Koss down about 4%.

Irrational exuberance strikes again.
 
  • #810
Astronuc said:
Irrational exuberance strikes again.
Is that what's going on?

It's pretty clear what GME's thinking is: it's easier to sell stock than to sell games.
 
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