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Comment by SpicyLemonZest | Hacker News Reader

The fundamental issue is that, to realize those 10,000% gains, you have to sell to some greater fool for a 10,000% inflated price. And there's a good chance that greater fool will be another retail investor just like you. (Leveraged trades which don't require a 10,000% price gain are possible, but what "leverage" means is that you can lose more than your initial $100 investment.)

It's a different story if the stock is legitimately undervalued, of course. But there's no coherent argument to be made that GME's current price - up 110% since yesterday! - is rational or sustainable. And indeed, if you look on WSB today, you see a lot of people explaining that you'll ruin the bubble if you don't keep buying lots of GME.

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If the play here were a simple pump and dump, that would all be accurate. Your ability to sell at 10,000% relies on there being a greater fool and that greater fool that ends up holding the bag could often be just a regular person investing unwisely.

The social media hype here is about this being a short squeeze. Large institutional investors have taken short positions and will likely be compelled to purchase to purchase shares at whatever price when margin calls come in on Friday. The current share price does not reflect the potential to profit off Gamestop as a company, it reflects the potential to profit off of the institutions that have taken incredibly risky short positions.

Here, the greater fool is already committed to buying your shares, and the timeline for that purchase is known with enough certainty to make this a fairly low-risk play.

Large institutional investors aren't compelled to wait for Friday to exit; they can decide (and largely seem to have already decided) that the market isn't acting rationally and they'd better get out early. I suppose that's not an entirely impossible theory - in principle even the losses they've already closed out are wealth transfers from them to WSB buyers - but I'm very skeptical that it won't ultimately end up being retail traders holding the bag.

yes, and today those greater fools are the hedge funds. Look up what a "short squeeze" is.

There is indeed a coherent argument for why GME's current price is so high. It doesn't have to do with the company itself but rather the current conditions of the stock.

There are 69.75 million gamestop stocks. Short sellers have borrowed roughly 97.65 million stocks. There are literally fewer stocks available than are needed. Supply is low, demand will be high when short sellers are forced to cover their losses. Think of the stock as an item you are purchasing as opposed to something the correlates to the value of a business and it'll make more sense.

I don't think this is what the intention of the stock market is, but the system allows for it to happen. The system needs to be fixed. You shouldn't be able to short more stock than exists.

>The system needs to be fixed. You shouldn't be able to short more stock than exists

why? the margin calls will materialize losses when theres no more demand for shorts. what does that have to do with the magnitude of aggregate short position relative to stock?

> you have to sell to some greater fool for a 10,000% inflated price.

I thought the whole point is you have guaranteed buyers because the groups shorting the stock need to buy eventually.

True enough, but it appears that in this case a lot of the "greater fools" are hedge funds that shorted the stock, essentially pledging to buy it back no matter how high it goes.

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