Originally published at: https://boingboing.net/2021/01/25/social-media-punishes-those-who-short-gamestop-stock.html
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WallStreetBets treats stock trading like a video game, says Jaime Rogozinski
So do a lot of actual stockbrokers.
I have no idea if the stock deserves more than its initial $20 valuation (the social hub/LAN cafe pivot is interesting, as is the new board member), but it’s fun to see this bunch spending money to tr0ll the institutional short sellers.
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Gamestop was always a poor corporate sellout imitation of all the stores which it digested. Babbage’s, Funcoland, etc.
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-SEC Joins the Chat-
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(Typing)
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What is happening here that’s illegal?
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I read about this a bit last week to try to understand it and quickly came to the realization that I know very little about how the stock market works.
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Probably nothing - I’m no lawyer or even a trader. But a coordinated online campaign to change a stock price to raise enough to cause a cascade sounds like it bumps into market manipulation laws. But then again, I think a lot of even legal financial ‘products’ sound kind of sketchy.
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The difficulty here would probably be the “coordinated” part… because it’s definitely an online campaign, but 5 seconds on /r/WallStreetBets would be enough to prove to anyone that it is the absolute furthest thing from coordinated. Or sane.
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It’s all betting and herd mentality (and now machine-learning triggers) at the base of things. Which is the point of the reddit group, I assume.
The confusing part here is that you can borrow shares of stock, which – strange at it seems – you totally can. Some casinos lend gamblers cash or chips, too. So short selling is just another bet.
For example, I think Gamestop stock is overvalued at $20 per share, and think (i.e. wager) that its true value is $10 and will be there in two months. I “borrow” (but don’t buy) 10 shares from my broker for a couple of months and then sell the borrowed shares to someone who still thinks they’re worth $20 ea. Now I have $200 cash. Two months later, my bet turns out to be a good one – the Gamestop shares are now valued by the market at $10 ea. I buy 10 shares using $100 of that cash, use them to return the “borrowed” shares back to my broker on-time, and now have $100 in cash as profit (if the shares go lower I make more money).
Now suppose my bet doesn’t pay off and two months later Gamestop’s value goes to $70 a share thanks to those pesky reddit kids. I still have to return the 10 shares to the broker on time, meaning I have to buy them for $700 cash and have just lost $500 ($700 minus the $200 I made earlier). That’s why the short sellers in the story are so annoyed, but there’s nothing illegal going on so they’re screwed if the timing is bad. Such is life for gamblers.
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They bought, gutted, and ruined ThinkGeek. They can go rot.
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This whole deal in fact a lot of “Robinhood” sounds like the old “pump and dump” scheme.
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Thank you! I had no idea what ‘shorting’ was, and you explained it so clearly.
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Good basic explanation of the topic, kudos. I learned about shorting back in the late 90’s when I spent a few miserable months temping at Alex Brown (nee Deutsch Bank soon after I left). That knowledge is what convinced me that the stock market was nothing but a giant slot machine for the wealthy, and my view of it has only dimmed further since.
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I ended up going back and forth with one of these guys elsewhere online.
Their reasons amounted to a lot of magical thinking combined with “Fuck boomers for trying to kill a beloved company”.
They claimed GameStop would be shifting to PC components which are “exploding”. Didn’t seem aware that GameStop has been fumbling that effort for at least a half decade, or that this is pretty much the smallest component of the growing PC market.
Expected that GameStops tiny, run down stores in outlying strip malls and failing shopping malls made them a natural competitor for Microcenter and Best buy. And that because GameStop they could somehow supply hard to get components despite industry wide shortages and that people would happily pay more for them just because it’s GameStop. Also that this would be a factor beyond our current Covid racked moment.
Despite the PC component market already being conditioned to shop online.
Proposed a hypothetical about GameStop launching a digital download store that allowed used sales. With no allotment for the walled garden nature of console digital stores. Or how bonkers the idea that Publishers would allow that is. Didn’t seem aware of how much of GameStop’s business is already wrapped up in the used game/trade in shell game, how long it’s been considered an anchor around their neck, and how much it’s destroyed their relationship with publishers and hardware makers.
Also cited the already considered a huge failure Think Geek buyout and shift to Funko Pops as “proof”.
Didn’t seem to know about their nasty history of labor relations. That as recently as last fall the company was seriously expected to announce bankruptcy and store closures. Or that the company themselves were warning this spring that COVID was about to kick them off the ledge.
It was almost pure bubble thinking. Circular logic and speculation in a population that’s mostly interested in gaming, and thus the game store most be healthy and about to do X, Y, and Z thing I’ve heard about.
The big impression I left with was how god damn easy this would be to astroturf. Get a couple of bots posting some invented rumors sourced to Chinese tech forums or some such. Link it to something reddit geeks with too much money on hand like, give it some trolly flavor about stopping the olds.
And boom. Stock run.
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This is a classic example of how most humans think most of the time. We arrive at the decision first, entirely emotionally. In this case, it sounds like this person has fond nostalgia for his local GameStop. Then, we back our way into a explanation for why that decision is a good one. We think we are rational decision makers, but in fact we’re just really really good rationalizers.
Astroturfing and such all work because all you have to do is find an emotional hook that will grab a lot of people, and they will do the rest to themselves. If the emotional hook is strong enough, you get things like Q-n-n where facts cease to matter even a little.
The key to remember is that we all do this most of the time. It’s effort to try and recognize it in ourselves.
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How does a company that’s so good at strip mining its competitors for value manage to do such a piss-poor job of actual retail engagement? I mean, don’t answer that, but still.
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Are they that good at it? I think the Think Geek debacle shows how badly they handle it. Retail under pressure from online sales? Buy a successful e commerce company, kill the e commerce part and roll their products into your retail stores! That’ll fix it!
Other than that most of what they seem to have gotten out of past purchases is squashing competition. Their early success came out of monopolizing the shopping mall market when that mattered. In large part by consuming PC Game retailers but shedding the PC end of the business. Then in consuming used games stores, where they mostly just seemed to be after the inventory.
After that it was just riding the trade in racket and becoming the only game specific retail venue.
They missed online sales, missed digital distribution, missed the boom in table top/board games. Came late to merch and collectables. Continually dropped the ball on the PC market and completely missed the whole streaming and esports thing.
I can’t really see how any of their take overs provided much beyond more locations and the other company just not being there anymore. Any given GameStop is the the exact same store, doing the exact same thing, from 20 years ago.
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