Official Stock Market Investing Thread

[revo]

Discord banned the WSB channel and the WSB subreddit is now private. Methinks the Empire is striking back.

Edit to add: And according to Chris Cillizza, you're a Trump supporter for cashing in on this Trumpist behavior or something.

The WallStreetBets board is public again. It was private just temporarily.

And I’m a capitalist through and through!

BTW, AOC has the backs of the WallStreetBettors!

[madducks]

Now Wall Street wants to change the rules. Talk about sore losers. They thought it was perfectly fine as long as the billionaire hedge fund managers were winning.

[TranaGreg]

hey revo (or anyone else) - curiosity question (I'm definitely not invested in this but it's fascinating to watch unfold) ... the redittors are indicating that there's no need to jump ship, that it will take days for the hedge funds to cover their shorts (they're saying 5-ish) and that activity will only push the price up higher in the very short term ... does anyone know how true that is? do the hedge funds have any other options to get out of their positions other than buying these shares out?

[chancellor]

hey revo (or anyone else) - curiosity question (I'm definitely not invested in this but it's fascinating to watch unfold) ... the redittors are indicating that there's no need to jump ship, that it will take days for the hedge funds to cover their shorts (they're saying 5-ish) and that activity will only push the price up higher in the very short term ... does anyone know how true that is? do the hedge funds have any other options to get out of their positions other than buying these shares out?

If you're bought in, revo knows better than I, but I'd be covering my winnings with a stop loss at a minimum if you want to hold. At this point, I don't see a whole lot of upside anymore either, so I'd bail.

[revo]

Robinhood & Interactive brokers just put the kibosh on buying GME, AMC and a few other options. That has put a major damper on this play. I'm taking my gains and walking away.

[chancellor]

Robinhood & Interactive brokers just put the kibosh on buying GME, AMC and a few other options. That has put a major damper on this play. I'm taking my gains and walking away.

Sooner or later, The Empire always Strikes Back.

Glad you're getting out in good shape!

[revo]

Sooner or later, The Empire always Strikes Back.

Glad you're getting out in good shape!

Today, despite the NASDAQ being up big, was a brutally bad day. I expected it after this morning's nonsense. Combine the Robinhood garbage -- where lawsuits due to their inexplicable decision may drive them into bankruptcy -- with the fact every major brokerage experienced outages for the third straight day (which, of course, is likely due to the whole Big Short Squeeze), and I couldn't place defensive positions this morning. So I lost 50% of my gains from the last 2 days, but I guess I'm one of the lucky ones, as I'd rather have +50% than -50%!

[chancellor]

The conspiracy theories are flying fast and thick on Robinhood's decision to shut down trading on certain stocks. Glad you were able to get out ahead.

[revo]

And now they announce that there will be limited trading in those names, and all those stocks shot up AH. Wonderful.

[GwynnInTheHall]

Burn it down, eat the rich.

[heyelander]

And now they announce that there will be limited trading in those names, and all those stocks shot up AH. Wonderful.

the class action suit signup site crashed because so many people were trying to access it.

[heyelander]

Nice write up from a dude on reddit

So basically what's going on is that the guys who are shorting everything are losing a _lot_ of money. I mean quite literally **billions**. As a refresher, if you think a stock will go down you can borrow a stock from a market maker, sell it instantly, wait for the stock to fall, re-buy it at a lower price ("covering" your position), and then give the stock you borrowed back to the market maker. You pocket the difference between the price you sold at and the price you bought at, in a practice called "shorting."

If you borrow a stock and the price _doesn't_ go down, you can pay the market maker some interest to let you delay things longer. The amount of interest you have to pay is related to the current market value of the stock -- so if it keeps going up, you can keep delaying forever but you have to pay more and more each time.

We already had one hedge fund that was doing this run out of money from the interest they were paying, making them have to get a bailout from other hedge funds. That was when the stock was at like $160. Now it's in the $300 range easy after hours, pushing $400. It got to $580 Thursday morning. If they were losing money at $160... they're losing a **lot** more at $580.

There's only so much GameStop ($GME) stock on the market. A lot of it has gone to people in WSB -- even if people there just owned 1 share each they'd own roughly ~10% of all the $GME shares. But we know a lot of people own 10 shares, and a lot of people own 100 to 1000 shares.

Before this madness, WSB was basically a place for upper-middle class people to YOLO their extra cash and lose it all on stupid things like gourd futures and meme stocks like $PRPL, $PLTR, $TSLA, and so on. A lot of the older members (...aka the people that were in there like a week ago) managed to meme YOLO buy a _lot_ of $GME stock when it was like $4. The patron $GME saint /u/DeepFuckingValue YOLO'd $40,000 (his entire life savings) back in 2019 and everyone on the subreddit made fun of him. Now he's worth $49 million and everyone is convinced he's a time traveler (he's since realized $23 million in profit, so he is set for life even when the pop happens).

These are a bunch of little dudes, but together they can easily get a **huge** chunk of the stock out of the market. As more people join in, they take more and more stock out of the market (assuming nobody sells, hence why everyone on WSB is screaming ��✋).

These shorts are under contracts. They _have_ to buy the stock, at any price. **Any** price. Even if it makes them go bankrupt. WSB is essentially putting a monopoly on the price, saying "You need to pay us $69420/share" and the billionaires would have no choice but to pay.

The issue is, interestingly enough, at $69420/share times the number of shares the shorts need to buy... it's more money than is in the _entire stock market_. And the shorts **have to pay it.**

---

So, obviously the hedge funds shorting the stock are going to run out of money. What happens when they run out of money?

Well, these hedge funds go bankrupt, and the people that funded them get the assets... and the debts. Remember that these guys are _still_ under contract to get a share of $GME to replace the share sold by the short sellers. Not fulfilling that contract is a "failure to deliver." For reference, "failure to deliver" is not only illegal (and impossible to happen if everyone is following legal means), [but is also a big driving force behind 2008](https://www.investopedia.com/terms/f...etodeliver.asp), when people started selling stocks they didn't have. This had impacts all up and down the chain -- delivering the thing you bought is _pretty much what the entire stock market is based on,_ so when it doesn't happen you get Bad Things™.

In 2008, you had some chain reactions occur with stocks that had more than 100% of their shares sold. Regulators didn't ban short-selling after 2008 because they "fixed" the problem by just making it impossible to sell more than 100% of a stock. However, this started when people noticed GameStop has 140% of its stocks shorted, which is... sketch. On Thursday we started to see some cracks here [as some brokers suspended the buying of $GME with an official excuse of "liquidity problems,"](https://youtu.be/7RH4XKP55fM) which in English means they were either running out of $GME stock or they were running out of money. Given that WSB has been purposely trying to make them run out of $GME stock, well...

Either way, now the people that funded the short sellers have to either break the contract and live with _huge_ numbers of "failures to deliver" that could cause a chain reaction that tanks the entire stock market... or come up with enough money to quite literally buy the entire stock market. Nobody has that kind of money, so the people that funded the hedge funds go bankrupt. And then the dudes that funded _them_ go bankrupt. On and on in a massive domino effect, all because people didn't learn their lesson in 2008.

Will it get that bad? Probably not... but it _could_. The other day we saw a _massive_ sell-off across the entire market because the billionaires were taking money out of the stock market in anticipation of a market-wide crash.

---

The most likely scenario here is that normal people are going to see a price that says to them, "Now I can pay my credit card debt." And then those ��✋ will sell, increasing supply. Supply goes up, price comes down. Price comes down, people start to panic that they're going to be left holding the bag. Billionaires will see the bubble popping 1-2 seconds before everyone else does and will buy the very expensive shorts, but that means they'll make money off of the bubble popping.

Nobody knows what the price is that will get the "normal" investor to start selling. It's _probably_ not $69420, but it could be. At some point, though, it will get too expensive for the billionaires to keep holding on to it -- the fabled "short squeeze" -- and the question is whether that mother of all squeezes will implode the entire market or not. Once the squeeze has squoozen there's going to be a rush for the exits.

---

**EDIT:** To clarify, I'm not saying WSB is in the wrong here. $GME was a meme stock and it was only after it achieved meme status that people realized "Shoot, in theory we can make some serious tendies." It's not the fault of WSB that the shorts overleveraged in a way that on paper could tank the stock market in an extreme circumstance -- it's a failure of the system and a failure of risk management by the shorts.

You're also seeing a side faction split off to target overleveraged shorts on purpose and attempt to "pump and dump" the stock (like what you see with $AMC). That's just taking advantage of this flaw at that point, and if that keeps up it's 100% going to make a hammer come down on WSB. Again, this is a subreddit which is all about "get rich quick" by buying massive amounts of ornamental gourds and then reselling them to someone else before they're supposed to be delivered (followed by the entire sub laughing at you when they get delivered early and you now own 1100 pounds of gourds).

Crash or no, within 2 years we're going to see regulations here to make sure this _cannot_ happen again. I don't pretend to know what that would look like, but I can't imagine the markets/regulators/lawmakers would leave everything unchanged.

[heyelander]

the fact that the patron saint of this potential market crash is named DeepFuckingValue is the most reddit thing I can think of and on the mount Rushmore of 2020-2021 bizarreness

[heyelander]

actually, setting the stated selling price at $69,420 is the most reddit thing I've ever heard of.

[heyelander]

Same dudes response to a question of why are the shorts buying stock now instead of letting redditors buy more

Well, the short (heh) answer is that they think it will go down. They think the bubble will pop.

Bear in mind that WSB also _wants_ these guys to do exactly what you described. When they fold, it will cause the "short squeeze" that this was all about as supply completely dries up and it becomes "name your price." Right now it's a game of chicken between the shorts trying to pop the bubble and WSB trying to bleed them dry through interest rates.

Over the past week, the hedge funds behind the shorts been getting more and more aggressive with their attempts to intimidate people into selling.

It started on Monday when they executed what's being called a "short ladder attack." Basically, the shorts buy a bunch of shares at the market price and re-sell them _below_ the market price, taking $60 or more out of the price in literal seconds. They "only" lose about $60/stock whenever they do that attack, which is peanuts compared to what they would lose in interest on their shorts if the stock price remained high.

The stock exchange has "circuit breakers" in place that will temporarily stop a stock from trading for 5 minutes if the price sharply tanks or sharply rises. The circuit breakers exist to give people some time to come to their senses (in "normal" circumstances) as well as to give the computers running the stock market some breathing room to process everything.

These short ladder attacks are designed to purposely trigger the circuit breakers and stop the stock from trading (and they're probably illegal, by the way). The goal originally was to cause panic in the "normal" people who don't know what's going on, with the goal of getting them to sell in a feedback loop to bring the price down. That's why it's called a "ladder" -- it goes down, halts, goes down, halts, etc. in a loop that sort of looks like a ladder.

This strategy worked on Monday but by Tuesday WSB had figured it out and informed their users -- to the point where WSB was buying up the discounted stock before it tripped the circuit breakers. They've been trying these attacks 1-4 times a day since Monday anyway, but it's getting more and more expensive to try to buy the initial stock required to execute the attack.

Wednesday the hedge funds realized short ladder attacks alone weren't working. This is when CNBC started attacking WSB to try and get public sentiment against them. You had these big media companies push a narrative that this was dangerous because _look at those price dips! Innocent people might get hurt!_ News started circulating that the SEC was going to come after WSB for market manipulation. Discord banned WSB from Discord for "hate speech" after the WSB Discord got swarmed by bots. At the same time, WSB itself went private for an hour to get stricter moderation tools online (a short ladder attack happened the moment WSB went offline to try to get people to panic).

Despite all this, the stonk kept going up. So that's why Thursday they brought out the big guns and broke the law by banning average people from buying $GME (but you could still sell it). This is... well, _very_ illegal, and is the actual market manipulation that Wall Street was accusing WSB of doing. Once that happened, we saw more short ladder attacks, but now these couldn't be countered by average buyers. This brought the share price down considerably, from a high of $580 at one point down to $100ish. This did a number on WSB, but later in the day most of the bigger investors pivoted out of the brokers that were used to attack them (like Robinhood) and into "boomer" brokers like Fidelity which didn't restrict trading on $GME. The price then spiked again after hours, with it hitting some resistance at $400 USD as of the time of this post.

---

Now, there's some speculation that a lot of the big hedge funds _did_ get out when they brought the price down. As I mentioned, for a short time the stock was back down to $100ish, which would have been a great offramp for these shorts to get out and avoid the squeeze. But according to what I'm reading at WSB, supposedly there is now **250%** of the stock shorted! It went up by 110%!

So what gives? Why are they doubling down?

Well, look at this from a investor point of view. The company we're dealing with is GameStop, a brick-and-mortar retailer with a promising future but no actual released plan or guarantee of success. You can't look at stock price alone to figure out how much a company is worth, so you have to look at market cap (stock price \* number of shares).

At $400/share, the market cap is about $27 billion, give or take. For reference, in 2007 when the Xbox 360 was new and disc-based console gaming (and GameStop stock) was at its height, GameStop's market cap was $9.6 billion. As an investor, ask yourself -- is this dying brick-and-mortar retail company worth _three times_ what it was worth in 2007 when there were 2 GameStops in every mall?

If you consider the bull thesis -- GameStop will pivot to merch sales and become "nerd stores" instead of "used game stores" -- you'd expect them to fall in line with something like Spencer's. Spencer's is a company largely based in shopping malls that sells gag gifts, adult toys, and novelty items -- they own Spirit Halloween, for example. Their market cap is $6.9 billion, and they're _established_ -- GameStop hasn't even begun to really pivot yet; they're still in the planning stages.

So from an investor perspective, _even in the best case scenario_ this stock is way too expensive. Which I think is _very_ obvious to anyone watching that GameStop stock should not naturally be worth $420.69 -- it's there because individual users on WSB are collectively exploiting the law of supply and demand (legally!). WSB is saying things like "$1420.69 is not a meme" but I think even WSB knows the price will _not_ stay at $1420.69. You're even starting to see "$10,000 is not a meme" but bear in mind that once $GME crosses $8000 or so _it'll have a bigger market cap than Wal-Mart._

From an investor's standpoint, the best course of action is to bet that the bubble will pop. You don't know when it will happen; you just know at _some point_ these little guys holding all the stock are going to get out in order to pay off their credit card debts or buy a new house or whatever. So you keep holding the stock short -- _even though you're losing money by doing it!_ -- because you think the bubble is going to pop any second now.

Basically, the guys who are short now are the greedy ones, the vultures. They're the ones who make money when markets crash. They _want_ this to crash, and they want it bad -- not only because they're _losing_ more and more money, but because they could _gain_ incredible amounts of money. WSB is making money as the stock goes up... but these guys will make _that same amount of money_ as the stock goes down. The stock market is zero-sum; it balances out exactly. It's just a matter of timing, and the people who are currently short are trying to be in at the right time (and potentially do whatever they can to speed it up).