GameStop missed out on capitalizing on the Reddit rally
reuters.com
reuters.com
It would have been unethical to be the boss of the company that offer new shares, got them bought on a market, but also unblocking all the short sellers in the process.
The consequence would be shorters would be happy, the price would drop, the people who bought into the hype would lose, and the gamestop boss would look like the guy who helped the hedge funds and stole from the common people.
I do agree that it would have been unethical (or at least pretty dubious) for the company to sell the stock knowing it’s massively overvalued.
Overvalued is in the eye of the beholder, in this case the market. There were people willing to buy the stock at that price, why not sell it to them? If the buyers really believed it was going "to the moon", then you could just as well argue they cheated a lot of potential buyers out of the chance to get in on that action.
Finally, if you do think it's overvalued, arguably the best thing to do as a company is sell more stock, to maximize the amount of money per share you get. This is the way Tesla does it for example: they only sell more shares into the market when the stock price is particularly high.
I wonder if there are there any markets anywhere in the world where company shares are publicly traded, valued by a quantitative means, such as a multiplier of revenue or profit?
So the answer to your question must be no, there are no stock markets where shares are traded on a purely quantitative base. This is because the only way for price discovery on such a market is by perfectly predicting the future, which is not (as far as we know) possible.
I don't think reported actual figures are enough to form a good enough image of the worth of a company. The proverbial example would be of buggy whip companies (selling whips for horse drawn carts) reporting record profits the year that Ford opened his first automobile factory. Clearly the buggy whip companies did not have a bright future ahead of them, but you wouldn't be able to tell from reported figures.
People on WSB had some arbitrary price targets in mind and are in denial that the stock hasn't squeezed yet because they haven't hit those (completely made-up, with no basis in anything) targets.
Almost certainly not. We will learn, in time, how much of the run was shorts closing out and how much of it was momentum.
Keep in mind, too, that most institutional short sellers hedge their risk with out of the money calls. Given the increase in volatility, those calls would have more than covered the short losses.
Edit: I was just nitpicking the analogy, I agree that the “common folk vs hedge fund” narrative is totally delusional.
Is it? Without the retail investors (gamblers) nothing of that would have happened. And Melvin Capital lost a couple billion dollars while quite a number of Redditors got a massive payout, so a net win for society.
Side note: As an European, the amount of GME-related "paid my student loan" and "paid my medical bill" posts on Reddit are heartbreaking to read.
And quite a lot of Redditors suffered massive losses. There's not shortage of WSB posts with 7 figure losses. Overall it's pretty hard to assess whether on net "Wall Street" made or lost money to retail. Melvin certainly wasn't the only player here.
It's likely that other funds jumped in on the squeeze, and were much better in terms of timing their exit. Some funds may have shorted on the way back down, and made a killing.
But most importantly, intermediaries like HFTs, option market makers, internalizers, and stat arb funds made a killing. Almost entirely at the expense of retail flow. It's like a casino. Some win, some lose, but the house rake always wins.
But even if retail on net made money, it probably wasn't a benefit to society. 20 people losing their life savings so that /u/deepfuckingvalue can become a multimillionaire isn't exactly a heartwarming story.
Also laying blame on deepfuckingvalue seems ridiculous to me. He was basically the only one that invested in Gamestop as a value investment.. about a year ago. Everyone told him he was stupid but he kept with his plan. Then at some point a horde of crazies jumps on the train and now he is taking money from "20 people losing their life savings"? meh...
This whole topic reeks of simplifications, misguided blame and populism.
I do not think this is usually the case on WSB, where people regularly show off trading on margin several times larger than their total account size :)
Even without margin, it's not uncommon to see people freely admitting they put everything they have into a single position (and mods happily verify it).
Works(ed?) for Mass Mutual.
It is, because the open corruption of the stock market, the absolutely disgusting behavior of major players and especially the arcane rules (like T+2 settlement, made necessary by the US's fossilized banking infrastructure) became dragged into the spotlight.
Wall Street claimed to have learned their lesson after 2008ff? GME proved that they all haven't learned a single damn thing.
> 20 people losing their life savings so that /u/deepfuckingvalue can become a multimillionaire isn't exactly a heartwarming story.
It's called wallstreetbets for a reason. I'm sorry but people dumping their life savings into the stock markets on a crazy bet by anonymous Redditors, that's just... dumb. (On a side note, such cases are why basic financial education should be mandatory at schools!)
(Disclosure: sunk a couple hundred into AMC and NOK, planning on holding all of it until at least the pandemic ends)
Given that 6 million of the current 8.5 million WSB subscribers joined after GME popped, I think most retail investors probably lost money. At this point it's a minority who got in early and made a lot of money.
Unlike AMC and AA they couldn’t easily take advantage of it due to disclosure requirements.
But I do believe they made some good on the momentum, just not publicly. Probably got some more exec's from other companies willing to come aboard that they're still negotiating with.
GameStop couldn’t. They were deep into the quarter and had non public financial information. The companies that could sell stock did.
If GameStock could have sold stock and didn’t, and if I were a shareholder, I’d sue. They have an obligation to current stockholders. And a duty to be honest to new ones. Nobody bought their shares at inflated prices under duress.
It would be a disclosure lawsuit. Lesser claims have been settled. The bar for throwing out cases is pretty low.
If that's all true, selling shares when the market is over-valuing them seems like it's creating shareholder value to me. (It's unethical perhaps; perhaps it's illegal. Either of those would be reasons to think it's harming shareholder value, but the sale itself is creating value.)
Beat the pants off Jack Welch yet fewer people know about him.
http://csinvesting.org/wp-content/uploads/2015/05/Dr.-Single...
That is an interesting way of putting it. Sam Palmisano took IBM on a massive buyback program a decade ago, and nothing about IBM since then has refuted your thesis!
https://www.sec.gov/corpfin/sample-letter-securities-offerin...
Hertz actually did sell new shares into the price spike. They went to the bankruptcy judge and got permission to sell new shares to help pay off the creditors. Shortly after they started selling the SEC essentially said "lol no" and told them to stop.
- It would be unethical to issue debt the company doesn't have the cash flows to pay without assuming refinancing is possible (the ENTIRE high yield market)
- It would be unethical to buy back debt in the open market at a discount ... they should pay what they borrowed!
- It would be unethical to raise capital by selling overinflated stock, the proceeds of which may lead to the life or death of the company.
The board has a fiduciary responsibility to it's shareholders to take the best course of action to maximize share-price. Assuming they actually could pull off a capital raise in the short amount of time the reddit bubble lasted, it would arguably be unethical NOT to do so. They didn't raise not because they are altruistic saints, but because it's an involved process that typically can't be done spur of the moment without planning.
The stock market exists so that companies can access capital. If Gamestop were able to raise money, pay off some debt, avoid closing some stores and laying people off in the future, and fund a turnaround plan, that would have been the best possible outcome.
The only ethical issue is whether all the information is out there for investors, and in this it wasn't, so they couldn't raise money until whatever they are holding on to is announced.
Why? What general rule of ethics is this violating? How could you write this as a general rule to be applied in the future?
AMC raised $300M in the rally and no one seemed to mind.
People who bought into the hype lost anyway.
The execs can then delegate the decision to the team without the knowledge, which would be legal (I think!).
The article really isn't very long, I suggest reading it!
The incomplete information is considered "material non public info" which stops the execs buying shares, but it isn't considered reliable enough info for the company to publish without risk of execs being sent to prison for publishing false info.
It’s not uncommon for a finance team to spend weeks preparing for even normal SEC filings.
From the article:
“Other companies in the midst of the Reddit frenzy whose financial quarters finished at the end of December and had already updated investors on their latest financial performance, were able to sell stock when their shares rallied at the end of January.”
Hertz was a bankrupt company. Their shares were legally worthless. And they didn’t have a shelf offering already authorised. Different facts and circumstances.
This was in fact the biggest bull case I could think of: that by getting maybe $1B on the balance sheet they would be well capitalized to take on projects to revamp themselves.
(Years later, there'd be scholarly works about how the GameStop Maneuver differs from a Ponzi Scheme.)
They could also sell big lots to banks which planned to immediately flip them to retail investors.
No big bank would touch this. An ATM offering had potential, but the amount of exposure this incident had meant that this was a risky grey area - legally and ethically.
Hire a little bank. Indemnify them.
Also, the big banks gladly sold AMC and American Airlines stock.
Of course, I'm speculating. But what else explains it?
The reasons in the article.
It's the "lifestyle company" of a bunch of Microsoft Millionaires, who wanted to have fun making games. Then they were in the right place at the right time to make Steam. There is no realistic point in their history when they would have both seemed to be this successful, and would have entertained buyout offers.
The two-sided market structure makes it almost impossible for a new entrant in that area. Steam remarkably has good feelings from both gamers and developers and the current ownership structure helps keep it that way: not squeezing the last penny and not being inclined to throw Steam under the bus to chase the new shiny.
If they wanted to be public, they surely would be already.
I know sometimes buyouts can look easy but there's often some massive power imbalance at play. In some cases it's having enough money to make even the strongest willed person give in. In other cases it's a matter of knowing that you can't compete so you either sell or get destroyed by them a few months later anyway.