Uncategorized

Hedge Funds scramble as reddit army strikes. Is it to late to get in the GameStop mania?

What a ride it has been for GameStock! Reddit has gone absolutely crazy about the GameStop frenzy! See this guy from the reddit forum known as “Deepfuckingvalue” who made a HUGE profit on GME. He got in very early in this fenzy as he bought his first stocks at 2$ and they now rose to over 350 EU! The gain he got in such a short time is incredible!

What happened exactly?

It feels a bit like Occupy Wall Street all over again. In 2008 when the banks died Governments spurred into action to save the big banks. At the same time the small investors were left in the cold and saw their small portfolios vaporize over a matter of months. Occupy wall street was a protest against inequality, but failed to make a big impact as inequality is bigger then ever in the US.

What some Reddit forum users started to notice was that Hedge Funds were shorting certain stocks massively. Basically what Hedge funds are doing is they are borrowing a stock, selling the stock and then they are betting for the stock to drop so they can buy it back at a lower price and return it. Or to explain it with the words of a reddit user (who also tend to refer to themselves as “Apes”).

XRPJon (@JMIV1) January 29, 2021

Reddit users argue Hedge Funds are making money on the backs of the company and the individual investors who are owning the stock.

How did GameStop started rising?

What the subreddit “wallstreetbets” noticed was that GameStop was being shortened massively. As short positions can only be opened for a limited amount of time before they expire and the Hedge Funds have to buy the stock back (and thus taking a loss if the stock goes up).

So for a good cause, in a battle of the rich vs the poor, the small investors vs the big hedge funds and the knights of old outdated company’s the reddit army started buying GameStock massivly! In a matter of weeks the stock skyrocketed like we have only seen in Crypto before.

Under the moto of #yolo (you only live ones) these guys did not care if they were going to get huge gains or they would lose everything.

The subreddit forum is not called WallstreetBets for now reason. Its a gamble, they could win a lot or lose a lot in a very short time. There is stories on this subreddit about huge gains but there is also stories about huge losses. While they claim they do not care one thing about this, deep down nobody likes to lose money.

To the moon?!

Image result for I am not a financial advisor

Well firstly you need to keep in mind you are buying into stocks they do belong to a company and that company can also actually go bankrupt. At the same time there was already other stock holders and they might be eager to sell of when the stocks surge. So you could lose everything.

GameStop stocks also rose from 0.2$ to 350$, the higher it goes the more people will be put off to buy in at the top. Its a pyramid and at this point you don’t know if you are buying in at the peak or at the bottom.

But that does mean a few people who saw it coming in an early stage made some great profits on this. Including the Financial Independence blogger Fighttofire that I follow, and I am greatly looking forward to see how it plays out in his Q1 portfolio update!

So do I support this movement? Hell yeah!! This is way to entertaining to follow! Just have a look at some memes that are doing the round on twitter, they are simply hilarious!

January 29, 2021

Do I think its a solid long term investment? Well its very different then my long term solid ETF strategy, I would not see this as an investment per se, but more as a ticket to be part of a movement. But I have been wrong before in the past and I sure hope for those who did buy that this thing will go to the moon!

Countermovement

Be aware however that there are forces trying to stop users from buying these stocks. Robinhood a free broker was actually one of the first to block users from buying $GME. Robinhood was not the only one, IG, eTorro, Interactive Investor, DEGIRO, Trading 112 and Freetrade all put some restrictions of some sorts.

That being said the reason why they put the restrictions is unclear. Robinhood argued that because of the sudden surge they needed time to get more liquidity first.

The actions of these brokers were not really welcomed by the reddit crowd, who then left huge amounts of negative reviews on the Google Play Store. These then in turn got removed by Google.

Robinhood is planning an IPA soon so its hard to say how this will affect the Robinhood stocks. For sure they have lost a portion of their supporters when they blocked $GME.

At the same time the SEC is keeping a close eye on the whole situation as they vow to punish abusive activity.

How they plan to do that is hard to say, if I buy a $GME stock, how could they possibly consider that abusive? Perhaps they will go after some individuals who bought these up massively but it will be a difficult case.

At the same time it was not unexpected. Institutional investors do not like volatility and they might stay away from investments as they look how the market evolves. SEC wants to avoid that.

What is the next $GME?

With $GME having risen 175% in value already in a few weeks, it might not be tempting to invest your money there.

I think the main thing you should keep in mind if you decide to buy a #yolo stock (as they are also referred to), that you should be prepared to have large losses. Keep in mind you are not just buying a stock you are buying your ticket to a movement.

A chance to be part of something big, and if you will enjoy to go on the reddit forum and be part of the movement then by all means get your ticket.

The subreddit Wallstreetbets does not only hold the tag Gains, but they also hold the tag Loses for a reason. There is users who have lost 100ks in stock betting who are publicly posting their story.

Unless the SEC can actually find a way to stop this, I do think we will see more of this. The subreddit forum Wallstreetbets has seen an enormous growth the last weeks,

From my side I would be lying if I said I was not tempted to try my luck with a gamble of some of these #yolo stocks myself, and I have been scouting the markets to see what the wallstreetbets subredit might jump on next. So far I am undecided if I will be buying or not.

Wallstreetbets seems to have a preference for older stocks reminding of the good old days, GameStop (selling used videogames) is such a stock, but you also have $AMC, a cinema chain, Nokia who used to be the king of mobile phones, and Blackberry of course.

I would say that Nokia is actually a good stock to have. While their mobile phone business is down, they are still a top 3 player when it comes down to cellular phone networks. And one of these players (Huawei) has to face accusations of spying for the Chinese government.

I am not sure about the other stocks. Its hard to say if these stocks will also go up. It does feel like gambling to invest in these stocks now though.

Unexpected winners

A few unexpected winners came out of this frenzy, and that is company’s who already had large amounts of a certain stock. Silver Lake for example had a huge amount of #AMC stocks and sold them off when the stock jumped from 2$ to 20$ making a 113$ million profit and making #AMC lose over half of its previously gained value again.

Same goes for MUST Asset manager, a South Korean company who held GameStock stocks and sold them all at the peak, of 420$. They made a billion in profit and caused the first dip.

But there is also losers..

With all these winners come also losers and a few people have bought in at the top and don’t mind to share their losses on the subreddit Wallstreetbets.

If the Frenzy would die out and people would stop buying they run a serious risk of losing a lot of money. They are aware of this and usually state that this will go to 0 or to the moon.

Conclussions

I was planning to write this as a subsection in my monthly portfolio update coming next week, however I realized I had so much to write about that it makes more sense to put it in a different section.

I would not see this as an investment but it is for sure an interesting movement, and I wish them the best of luck. I will be watching and cheering as this plays out.

Should you wish to join, then see this as a ticket to the movement, or a bet in the casino. Do not see it as a proper long term investment.

I personally prefer to have ETFs in my portfolio, but I do have a few high risk items as well inthere such as Startups. I think its ok to bet with a small portion of your portfolio as long as you are aware of the risks.

I have made loses in alternative investments in the past so I am very careful right now to invest again.

Want to start with investing? Check out my beginners guide on DEGIRO to find out how to start.

Interesting in reading more blogs about the stock market and my Roadtrip to Financial Independence? Then subscribe and stay tuned for more!

5 thoughts on “Hedge Funds scramble as reddit army strikes. Is it to late to get in the GameStop mania?

  1. Thanks for the mention! I’m actually busy writing about this as well, should be done by tomorrow or Tuesday, but moving to my grandmother’s house and Spanish classes take up a lot of my time.
    Mine will be more from my personal perspective as someone who was following it up close the months leading up to the past week or so.

    So you aren’t in it then? As far as $GME goes I’d say it’s a good call, even if it goes to say 1K you’d only be tripling it. You don’t have a ten-bagger in your hands. Since I entered at 40 (which is still kinda high tbh) I’m not sitting at about 700% profit excl. the 5 shares I already sold to cover my initial investment.

    Like

    1. Im not this came out of the blue for me, but for sure I will be watching the markets to see if any other opportunities arrise 😉
      Moving is always such a drag, I really hate it. Best is to hire movers and try to get it done in one day. Im not looking forward to moving at all, I have one couch that I have no idea how I ever got it inside and I know even less how I will get it out.
      I hope it goes all the way to 1000$ for you🚀🚀🚀

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s