GameStop market manipulation (and group manipulation)
First of all: I haven't spent hours researching this topic.
That being said, I have noticed that most guys are saying:
Don't sell now, hold
And at the same time, some pundits are saying that "the little guys have found a way to get rich" (see Mark Cuban), and the politician have jumped in on it -(see Trump junior).
So now this is being framed like a grassroot movement against Wall Street where the "small guys" are winning.
But this is not a case of the small guys winning, it's a case of some small guys winning against many other small guys, by manipulating other small guys.
Those people saying "hold" are either clueless, or they're manipulating.
What I think everyone is missing are the fundamentals:
You can't get rich by holding stock at infinity.
You can't buy anything with a stock on your portfolio.
To turn stocks into usable currency, you need to sell that stock.
And that's where people are getting confused: you can't keep on buying for ever -unless you can print money, so the government actually could-.
So when the small guys finish the money to buy more, or when any other exogenous events -or simply just pure randomness- will move the needle from "buy" to "sell", the trend will invariably change.
And since the price is highly inflated, chances are that the "sell moment" will move the stock quite violently on the downside. And those who kept buying at the higher prices will lose a lot of their money.
So the "hold" and "keep buying" is the manipulation of those guys who either bought low and want the price to go even higher, or who bought high and now want other people to keep pushing the price yet higher (AKA "selling to the greater fool").
They're not "beating Wall Street", they're just shortchanging other small guys.
P.S.: If there was an easy and non-time consuming way to profit on price drops, I'd probably be interested in it at this point. But always keeping in mind the mantra: "the market can stay crazy for longer than you can stay solvent".
Market makers have been making a lot of money during this COVID-19 period.
Bridging buyers and sellers at huge volumes.
Volatility is always good for them.
Hedge funds typically do not do as well as market makers during bad economies.
They take positions in the market whether short or long.
The baller traders don't post on social media.
They just trade.
Why would you be clicking on social media when you can be clicking on the stock exchange?
Unless you have a great influence on social media and you can manipulate at scale like what Lucio mentions.
It also doesn't make sense to give out information on trades.
Competitive advantage in trading has a large element on information asymmetry.
Update:
Exactly as predicted, the GameStop plunged:
Plenty of those "robin hoods" lost a lot of money, of course.
And Mark Cuban polished his image of the "good guy" on the side of the small guys (sure).
Hopefully, it will serve as a lesson to many on (crowd) psychology, manipulation... And basic trading dynamics (many of which find a parallel in social dynamics, too).
There was a way to make money of this, but it was about making money against the small and most naive player, not with them or, God forbid, for them.
The lesson applies to general power and life as well: if you go through life as a lamb, clueless of power dynamics and risks... Expect to be taken advantage of.
I read the thread and I liked it, thanks! I did not follow the whole story, though. However, I found this from CoC. Maybe you will enjoy it:
Surprisingly good video.
As I've noticed the guys seek to take a political path where they lay blame on nobody, while I think reality can be darker.
There is no mention to active manipulation, and they directly exculpate/defend the big names Musk and Cuban.
Mark Cuban gave terrible advice when he said "hold" to a bunch of clueless traders.
He was either being clueless, or was chasing something in it for him.
Since I don't think he's stupid, what was in it for him was a chance for virtue-signaling, and enjoyed playing the Robin Hood crowd leader.
He pounced on the occasion to build his own hype and further his name-brand.
And he probably contributed to some people losing a lot of money.
From a machiavellian point of view, I think your analysis seems correct. I'm no expert, though. But I think the interests at play must go in the direction you mentioned.
Quote from Lucio Buffalmano on February 17, 2021, 9:39 amThere is no mention to active manipulation, and they directly exculpate/defend the big names Musk and Cuban.
You're probably right about this, but it's also just as possible that they got caught up in the fun fever as well. Not enough that they wanted to actually invest their money in a stock that was clearly overvalued, but just enough that they wanted to see if the redditors could actually pull it off. Musk has a very public hatred of short traders, as they nearly ruined him multiple times.
I'm sure that a lot of people got taken for a lot of money in this bustle, but everyone knew that it was always going to happen - the question was just when. First time (or generally inexperienced) traders usually think that they will be able to time the market right and not be on the losing end, an assumption that is swiftly corrected. While I do feel bad for the people who did stupid things like take out loans or throw their life savings into GME, there were also multiple pinned posts on WSB every day specifically saying not to do that... And just general common sense.
I think that it had a greater overall impact than this particular dollar amount though, as it will possibly lead to investigations into the hedge funds making illegal bets (naked shorting) but more than that, will essentially put them on notice that when they make ridiculous bets, the reddit guys will be there to eat their lunch. The WSB subscriber count went from under 1 million to over 6 million in that 2 week span, with many of those new subs being people looking for the next line of attack. Maybe not as much as happened this time, but even if it's a 10x loss, it's something they have to be wary of.
Yeah, that's definitely possible Jack that both Musk and Cuban were simply caught up but the coolness of the event/novelty.
Still, I'd have to wonder how a billionaire like Cuban who's been talking about investing for quite a while couldn't see the hot potato that thing was becoming.
Like you say, more experienced investors knew what they were getting into.
The big risk factor was for the greener ones -and there was a major influx-, with no knowledge or expertise, who drank the full kool-aid, and plowed their whole life savings in it (let alone those who borrowed :S).
On the positive side, hey, the lesson you learn when you get burned is the lesson that really burns into your mind :).
After reading through the WSB forum during that whole debacle, it was clear that there were plenty of people there who thought that they were going to make the hedge funds 'pay' and they wanted to be on the 'good' side. CoC's video goes into that as well, but the users were saying that they didn't mind even if they lost everything to make their point. I.... can't say that I agree with what they were going for, but I can understand the mentality behind it.
For those who were actually trying to make money on it, well, experience is the best teacher. Ideally, one should be able to look down the road a little bit and determine whether or not a stock or asset is actually worth its cost. When GME was at 300-400, it was clearly overvalued and a supremely obvious bubble. It's perfectly fine to try and time the bubble to make some cash, even if you don't believe the price is correct, but it's a very dangerous game to play. I hope that low-information individuals didn't do this based on the quasi-advice of Cuban or Musk, but there's also an underlying correctness in WSB's base understanding. GME was tremendously undervalued, and will likely be able to turn their business around under their new leadership. If I were to take a guess at the actual value of GME a year from now, based on my very cursory due diligence and understanding, I'd peg it around 75 / share. Or bankrupt if their new leadership fails. Whatever, I'm not a financial advisor so don't listen to washed up musicians for investing advice! 😉