Caymans Post

A world within. A state apart.
Friday, Mar 29, 2024

GameStop: Novice investors are trying to beat Wall Street professionals at their own game.

GameStop: Novice investors are trying to beat Wall Street professionals at their own game.

It's an apparently crowd-sourced attempt to beat billionaire traders at their own game. But who's really winning and losing this battle?

Financial markets have been riveted by the tale of novice investors taking on Wall Street pros by buying up shares of US video games retailer GameStop, which many hedge funds had seen as a losing bet.

Reddit traders


GameStop, a loss-making chain of bricks-and-mortar shops, saw shares jump from being worth less than $20 each at the end of December to nearly $350 on Wednesday.

The surge has been attributed to a swarm of independent traders, swapping tips on social media, who saw an opportunity to pressure Wall Street hedge funds that had made deals assuming GameStop's share price would fall - and would have to purchase shares to cover losses if the stock rose more than expected.

That, in turn, could generate a kind of buying frenzy - and chance for gains for the little guys.

In recent weeks, they've deployed the strategy on behalf of other firms, such as struggling theatre chain AMC Entertainment, owner of Odeon Cinemas.

And the idea has caught on globally, fuelling activity in stocks traded in other parts of the world, including the UK, Brazil and Malaysia.

The social media forums where the amateur day-traders stoked enthusiasm for GameStop are full of snapshots showing how their bets have performed - in some cases growing from tiny sums to positions worth millions of dollars.

But for many, these are just gains on paper - and could still end in big losses if the prices fall back.

On Thursday, after the wacky market conditions prompted some trading platforms, such as Robinhood, to restrict purchases, shares dipped. Some traders posted comments confessing to nerves at the prospect of losses, while rallying their fellows to hold the line and avoid selling, staving off a sudden price collapse.

And on Friday, GameStop shares rose again, climbing 68% to $325 apiece, even as the market overall dropped.

If prices drop back, however, some who bought in too late will be hurt.


Wall Street


The buying frenzy has reportedly led to losses for some big name hedge funds, including Point72, a firm run by infamous investor Steve Cohen, a billionaire art collector and owner of the New York Mets baseball team whose first hedge fund, SAC Capital, pleaded guilty to insider trading charges and shut down.

Some of the losses this week stemmed from Point72 money being managed by Melvin Capital, a company founded by a former SAC star trader, which had made big bets against Gamestop and was forced to pull out of the trade.

Other firms reportedly hit include Maplelane Capital and DI Capital, while other prominent short sellers have said they - and their families - have been subject to harassment.

Analysts also say the pressure on hedge funds is one force behind broader declines in US markets in recent days, as firms sell other investments to cover their losses.

Mr Cohen, whose firm helped provide rescue funding to Melvin Capital amid the upheaval, has appeared to allude to the strains caused by the Reddit army, writing on Twitter: "Hey stock jockeys keep bringing it".

That's not to say there aren't investing pros benefiting from the battle against the short-sellers - many of which are still betting stocks will fall.

Firms like investment giant Fidelity and BlackRock, which own more than 10% of GameStop shares, have seen the value of their holdings rise.

The surge also benefited Ryan Cohen, an entrepreneur who sold his online pet retail company Chewy to Petsmart in 2017 and revealed a major investment in GameStop last year.

Executives at some companies favoured by the day traders, such as BlackBerry, have gotten windfalls from selling their shares.

It's creating opportunities for other kinds of companies too. For example, private equity firm Silver Lake Group, which had loaned money to AMC Entertainment, converted its bonds to shares after the surge in the firm's prices, a swap worth hundreds of millions of dollars.

In other ways, however, the episode could bode ill for Wall Street in Washington, where Democrats now claim slim majorities and Congress was already eying tax hikes for hedge funds.

Senator Elizabeth Warren, a prominent voice in favour of tougher rules, has said the episode warrants wider investigation, pointing to fault on both sides of the battle, which she said was a sign of market distortions that could put the rest of the economy at risk.


Robinhood


Regulators already had their eyes on Robinhood, an app used to buy and sell shares that has seen its popularity explode amid the pandemic.

The Silicon Valley company, which makes money in part from fees charged to Wall Street funds that execute customer orders, is accused of courting inexperienced investors and encouraging them to trade frequently and deploy risky strategies - even if it goes against customer interests.

This episode has only intensified regulator scrutiny.

Meanwhile, the firm said late Thursday it had raised more than $1bn amid questions about financial strains on the firm created by the buying frenzy.

It's also facing outrage from customers - and lawmakers - angry after Robinhood was among the trading platforms to limit purchases of Gamestop and others' stocks, citing market volatility and risk.


Gamestop, AMC Entertainment and others


Many of the companies whose shares have been championed by day traders in the battle against the short-sellers are what have been dubbed "90s nostalgia stocks" - firms buffeted by changes wrought technology, like the decline of traffic to bricks and mortar shops and cinemas.

The pandemic has only hammered them harder.

GameStop, which was founded in 1996 and now has more than 5,000 stores in the US, Canada, Australia and elsewhere, saw sales fall 30% in the first nine months of 2020.

AMC Entertainment, the owner of Odeon Cinemas, meanwhile, warned last month it risked running out of cash, after traffic to its theatres plunged last year.

Some of those firms have seized opportunities created by the recent trading to ease financial strains.

AMC, for example, raised more than $300m by selling shares this week and has said it is exploring additional offerings.

American Airlines has said it is also planning to sell shares.

But regardless of what happens next in the financial markets, the challenges facing them in the real world aren't going away.

Newsletter

Related Articles

Caymans Post
0:00
0:00
Close
Paper straws found to contain long-lasting and potentially toxic chemicals - study
FTX's Bankman-Fried headed for jail after judge revokes bail
Blackrock gets half a trillion dollar deal to rebuild Ukraine
Israel: Unprecedented Civil Disobedience Looms as IDF Reservists Protest Judiciary Reform
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Southeast Asia moves closer to economic unity with new regional payments system
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
Musk announces Twitter name and logo change to X.com
The politician and the journalist lost control and started fighting on live broadcast.
The future of sports
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
TikTok Takes On Spotify And Apple, Launches Own Music Service
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Typo sends millions of US military emails to Russian ally Mali
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
Europe is boiling: Extreme Weather Conditions Prevail Across the Continent
The Last Pour: Anchor Brewing, America's Pioneer Craft Brewer, Closes After 127 Years
Democracy not: EU's Digital Commissioner Considers Shutting Down Social Media Platforms Amid Social Unrest
Sarah Silverman and Renowned Authors Lodge Copyright Infringement Case Against OpenAI and Meta
Italian Court's Controversial Ruling on Sexual Harassment Ignites Uproar
Why Do Tech Executives Support Kennedy Jr.?
The New York Times Announces Closure of its Sports Section in Favor of The Athletic
BBC Anchor Huw Edwards Hospitalized Amid Child Sex Abuse Allegations, Family Confirms
Florida Attorney General requests Meta CEO's testimony on company's platforms' alleged facilitation of illicit activities
The Distorted Mirror of actual approval ratings: Examining the True Threat to Democracy Beyond the Persona of Putin
40,000 child slaves in Congo are forced to work in cobalt mines so we can drive electric cars.
BBC Personalities Rebuke Accusations Amidst Scandal Involving Teen Exploitation
A Swift Disappointment: Why Is Taylor Swift Bypassing Canada on Her Global Tour?
Historic Moment: Edgars Rinkevics, EU's First Openly Gay Head of State, Takes Office as Latvia's President
Bye bye democracy, human rights, freedom: French Cops Can Now Secretly Activate Phone Cameras, Microphones And GPS To Spy On Citizens
The Poor Man With Money, Mark Zuckerberg, Unveils Twitter Replica with Heavy-Handed Censorship: A New Low in Innovation?
Unilever Plummets in a $2.5 Billion Free Fall, to begin with: A Reckoning for Misuse of Corporate Power Against National Interest
Beyond the Blame Game: The Need for Nuanced Perspectives on America's Complex Reality
Twitter Targets Meta: A Tangle of Trade Secrets and Copycat Culture
The Double-Edged Sword of AI: AI is linked to layoffs in industry that created it
US Sanctions on China's Chip Industry Backfire, Prompting Self-Inflicted Blowback
Meta Copy Twitter with New App, Threads
The New French Revolution
BlackRock Bitcoin ETF Application Refiled, Naming Coinbase as ‘Surveillance-Sharing’ Partner
×