I am not a financial advisor. You should NOT read this post looking for advice regarding stocks, investing, or the market.
Now that that's out of the way... have you guys seen what's going on with GameStop?
I know, it's been all over the news. As I write this post, the GameStop stock is currently trading at over $300. About a month ago it was less than $15.
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| This screen shot is from 31 Jan 2021 |
People unfamiliar with the stock market might think that this is amazing and shows that GameStop is doing really well and that if they buy the stock, they'll make money. People unfamiliar with Reddit might be trying to figure out what it is and why it's causing GameStop to trade at such an inflated price.
Guys, this whole thing is one giant troll.
I mean that in the Internet sense.
Yes, some people are doing this to mess with Hedge Funds. Yes, some ordinary people are going to make a lot of money.
However, this is an American Tragedy waiting to happen.
This all started when some dudes on a Reddit page noticed that a Hedge Fund was planning on shorting the GameStop stock in the hopes of making a ton of money. This is not an unusual thing to happen in the market - most financial institutes are just smart enough to not advertise what they are doing to the general public. How or why the people of Reddit learned this information isn't super important. We can assume it was public information or at least released publicly.
What is important is that these people on Reddit - because of nostalgia, wanting to stick it to "the man", pull of the biggest troll of their lives, or to deal with their boredom from the pandemic - decided to buying up the GameStop stock. Thus they drove up the trading price.
More people jumped on the "buy GameStop" train and the value of the stock shot up. This meant that the Hedge Fund that made a bet to short the stock were going to lose a ton of money.
Now, I don't really like the practice of shorting stocks - I don't think it's all that cool to bet on someone or something to fail - so I don't feel much for these institutions. But I'm also not going to go out and tell people to buy GameStop or any of the other stocks these Reddit people are trying to drive up.
GameStop stock is not work the $300 it's currently trading at.
What does this mean?
It's a massive train wreck waiting to happen.
Here's where we get to the tragedy. If you need a refresher on what tragedy is, it's basically when a story ends badly because our protagonist has a personality quirk that's actually a fatal flaw. Think Hamlet or Othello from our days studying Shakespeare (assuming you guys studied this). If you want a quick deep dive into the genre, go watch the Overly Sarcastic Productions video (link here) that came out a couple of days ago. It's funny and informative.
See the thing about the stock market is that it's just another type of gambling. By buying a stock, you are betting the value will go up. The value of a stock usually, but not always, reflects how a company is doing. There are other benchmarks that should be watched and some stocks are traded at future/potential earnings instead of real/current earnings which adds another layer of risk. People who know what they're doing know that there's no guarantee that the money they put in the stock market will ever be seen again... even if there's also the chance they'll make a ton of money.
From my perspective as an outsider of the situation looking in, I'm entertained by what is going on. A bunch of people on the Internet getting together to disrupt the stock market and stick it to a bunch of billionaires is satisficing in many ways. Its a whole new level of trolling.
But there's going to be collateral damage… and I don't mean those Hedge Funds that are going belly up. Real individual people are going to be harmed by this.
Though I've been avoiding reading the actual Reddit forums, some of my friends haven't and they're concerned by the number of people bragging about how much money they put in to buy GameStop stock. Some people were claiming that they had put in all of their savings or at least their stimulus checks to join in on the buying frenzy.
I want to repeat that GameStop stock may be trading at over $300, but it is not worth that amount.
GameStop is not doing well as a company. And the most tragic part of this story is that they could easily go bankrupt. If that happens, everyone loses their money. There's no refund for a stock from a company that goes belly-up.
That's the worst case scenario.
The real tragedy comes from the people who brought the stock when it was at it's highest and how much they're going to lose when the market re-stabilizes. The people who brought the stock when it was still around $15 are going to make a lot of money, but that's not going to be most people. Most people are going to lose all the money and then some that they put into GameStop.
That's the reality.
That's the tragedy.
I don't think that many of those people who helped drive up the cost of the stock realize this. Investment isn't something that the average American participates in on their own. With the push for investment apps and free trading on the Internet, more people have begun to try their hand at it, but it's still not the norm. How to invest isn't a standard class in schools (though I did take several classes on the subject in both high school and college, but they were electives).
So no matter what happens next, the market stabilizes or GameStop declares bankruptcy, the people still throwing their money at this stock are going to lose it. I don't know when the bubble is going to burst. I don't know how awful it might be (it might not be that bad).
I don't even know what kind of laws and regulations are going to come out of this. And, oh yes, there will be laws and regulations because of this madness.
Like I said earlier, it's a train wreck waiting to happen. I'm morbidly fascinated being entertained by a situation that I know will end badly no matter what. I am a member of the audience watching a play where the actors are inviting the gullible to join them on stage.
Tragedy is cathartic. It's not positive or negative. It simply is. Hamlet continues to be performed nearly 500 years after it was written even though we know how it's going to end. Heck the first monologue in Romeo and Juliet tells us that our two love birds are doomed to die. There's no mystery to the story. We already know what's going to happen. What we don't know is the "how".
Which is where we are in the GameStop stock saga (as I write this post).
Some people might walk away with a lot of money, but the average person is going to get hurt. Seriously hurt - like Ophelia drowning because she went crazy hurt (that's not a spoiler to a 500 year old play).
And that my dear readers, is why this is an American Tragedy.
If you enjoyed this post (or it really pissed you off) please like, share, and/or leave a comment. I love hearing from my readers and I hope y'all like hearing from me.
Until next week.
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