Get Out, While the Gettin' is Good
Like many others, I have watched the GameStop saga unfold over the past couple weeks. While I'm a big fan of "sticking it to the man", I foresee a lot of pain coming for the retail investors who have taken part in this short squeeze operation. I'm fearful that many don't realize that this game will not end well, and they will be the ones left holding the bag. Many of the recent participants have made stock purchases of GME at a price of several hundred dollars per share. This is significantly above the single-digit price it traded at for much of 2020.
The fundamental problem is, actually, the underlying fundamentals. Stock prices, over the long haul, are based upon current and future profits. While you can manipulate prices in short durations, the fair market value will eventually dictate the actual price. Buying (or shorting) stocks should be based on these fundamentals and the research you conducted to determine if you think the price will go up or down. If you are buying a stock for any other reason, you are not investing and be prepared to lose big. This entire situation has, essentially, created a gigantic Ponzi scheme, where you need to find more "suckers" to keep the game going. Early participants will win, and everyone else will be left to fend for themselves. It will be interesting to see how deep the SEC will investigate this matter, as this entire situation seems suspect.
The problem is GameStop is not a good company, and its single digit price in 2020 was a reflection of that. It is a slowly dying retailer, with dwindling financials, a poor growth outlook, and hasn't transformed itself to meet a changing market. I expect this situation to turn south very quickly, and many of the retail investors are going to lose nearly everything they put into it. You will see billions of dollars of wealth disappear in an instant; as retail investors trample over each other trying to get out before losing everything. The only winners here will be the early participants at the top of the "Ponzi" scheme, and maybe all those GameStop employees who are like "holy shit", I can actually sell my stock options at a profit.
If you own GME stock, I'd say it's time to evaluate your options as you will never see prices like this again.
DISCLAIMER
This article has been created and authored by James Hughes (the “Author”) and is published and provided for informational and entertainment purposes only. Under no circumstances does the information presented in this article represent a buy, sell or hold recommendation on any security. The information in this article constitutes the Author’s own opinions and do not reflect the opinions of his employer or its affiliates. None of the information in this article is intended to provide any tax, legal, investment or trading advice. Nothing provided through this article whether by the Author or posted by other writers or commenters constitutes a solicitation of the purchase or sale of securities or futures. In reading this article, you understand that the Author is not advising you personally concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter.
Senior Consultant with Orion Groups | Healthcare Focused
4 年Thanks Jim for taking time to “type” your thoughts on GameStop and stock “investing”. Keep the stories coming. I bought a vintage typewriter to help me get some of my thoughts typed out, inspired by Hemingway.
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Enterprise Architect at Universal Service Administrative Co. (USAC)
4 年There was a time and place where settling up at the end of the day was the expected. We have found a way to game that. Wall Strret should be about investments into a business and receiving a piece of the profits when they materialize. Shorting is nothing but extorting assets without any consequence. It is 2021. So requiring immediate payment once a sale is made should be the norm, and that will solve the problem. Cash in the barrel. No more day trading. Point of Sale Settlement. Hold for three days. Personally, I would put a sale no sonnet than 3 and no later than 7 days or a required hold for 90. No more gaming the system....just investments on success.