GameStop Investors Who Bet Big–and Lost Big | Hacker News Reader

GameStop Investors Who Bet Big–and Lost Big

wsj.com

34 pointslaurex85 comments

I never got the "stick it to the hedge funds" attitude by buying the stock and ending up losing the money. It's looking more and more like other hedge funds got the money small investors put in the stock. There's got to be a better way to protest.

What's interesting to me was that this seemed like the old pump and dump scheme that has been part of wall street fraudsters forever. It's a scheme where a group buys a low price stock, promote it to no end and then dump it as people go nuts buying it. Yet, few if any news services pointed that out.

I hope we get some real answers as time passes. My suspicion is that it was just a pump and dump that got out of hand because it got picked up by the media.

Worse still, I saw some speculation as to what portion of WSB traffic was in fact bots.

Regardless of what happened, next time it could be all bots doing the hyping.

Cybercrime is already catching on to these ideas, there were reports of criminals breaking into corporate systems to steal financials, then trade off them (or sell to traders). This is all rife for abuse.

Definitely feel like it was bots saying “We’re going after silver now!”

>>Regardless of what happened, next time it could be all bots doing the hyping

It's happening with political news. It's only a matter of time before it catches on in wall street.

I just love how this whole sequence of events is being touted as the "underdog sticking it to the man".

What I see is a bunch of internet trolls getting together and trolling Wall Street.

Is that a bad thing? It depends. If you're just dicking around and you put in an amount you can afford to lose, it's all fun and games. But when you convince newbies to trading and investing to put loads of their hard-earned money, on leverage, to a meme stock, it's not so fun and games anymore, is it?

I'm all for teaching hedge funds a lesson by squeezing them, but it would've been nice if folks come out _mostly_ unharmed financially. Instead, you have lots of these r/WallStreetBets folks in the red on leveraged trades. Good luck making back that money as quickly as you lost it.

One point to note is that the debt you'd get from buying GME on leverage is way better than the debt you incurred from that higher education you couldn't afford and didn't pay off.

If 1/10th of the users on r/WSB would put $1000 fun money in and HODL while focusing all their energy on a select few stocks that would be a billion dollar war chest pointed right at the heart of wall street.

Unfortunately, the mob couldn't hold it together. A bunch of them got caught up in it and decided to dump their life savings at the high water mark and Robinhood really took the wind out of the rally. Robinhood stopping trades seems to be the catalyst that popped the balloon. Now you have 10 million people on Reddit who can't get organized and some are really hurting, even though they should have known better.

The swell was amazing, but it was a rogue wave. I'm sure it will happen again, but harnessing and controlling that energy is going to be like trying to control the ocean.

This is wrong! "Holding" does nothing. The very nature of short trading (remember, the thing that was supposed to have been exploited?) means that even if YOU hold, and everyone else does, your brokerage can loan that share to someone else who will sell it (because they think it will go down, of course).

I mean I feel like it was really “hold what you buy until the funds are forced out of all their short positions”, which (and maybe I’m wrong) means that the price would have kept climbing with no sells to bring it down.

Yes, that was the impetus for holding. Of course reality got messy really quick.

I'm sure given enough time even if WSB were able to hold Wall Street would have figured out some way to exploit it. The other driver was the hope that the SEC would step in and do something to even the playing field, but that's unfortunately even less likely in my opinion.

I was surprised that there wasn’t much coverage of the fact that the funds shorted again just at the peak ($480 or something) right as the buys were being halted for retail. That 100% smells like an exploit to me.

Again though, that does not work. Because "holding" that stock does not prevent the very same share from being sold by someone else in a short trade. To maintain a price in a market you need to continue to buy the security.

Again, this is just fundamental "Trading 101" stuff, and it's just amazing the extent to which the WSB community straight up refuses to believe it.

>your brokerage can loan that share to someone else who will sell

There were instructions going all around WSB with "put in a limit sell order at $10000000 to prevent them from loaning your shares" as well as directions on how to go into your trading account and disable "stock yield enhancement" or whatever it's called on the platform.

(And I hate that I'm in the position of defending WSB, a group of degenerate gamblers dragging in new victims every day. But it just so happens that they were on top of this one particular angle.)

I don't think that works. I'm not an SEC regulator, but I don't believe there's any requirement that the brokerage hold real shares for the full total of all outstanding sell orders[1], or to logically segregate the holdings of different customers.

If someone comes by and tries to buy that million dollar share, the brokerage is merely required to honor the trade with a share they have from anywhere, including one purchased from the market or held by a different customer.

Again, this whole notion of "Hold the Line" is just not how trading works.

[1] I mean, that's just trivially violated by a perfectly normal short sale by definition.

DeepFuckingValue have not posted his position since 11 days and from what I understand when everyone was pumping the price he was gradually selling : https://www.reddit.com/user/DeepFuckingValue/

Correct me if I am wrong but He is $13.8M on the green and not like green as if his shares gained value but He actually exited and can click one button to have the money in his personal bank account and live the rich life. But on r/wallstreetbets I kept seeing posts about how he lost millions and still holding and GME meme is still a thing.

Is the show going on? Did I understand the situation terribly wrong?

He stopped posting because he was actively the target of an SEC investigation. If I recall his last message was something like “I’m gonna have to stop these updates for a while. Pretty sure you all know why.” He never claimed he wasn’t taking profits; he was drawing down his position every week with new slates of options once that week expired. Because that’s how you play options. That neophyte redditors who have been trading options for 6 months don’t understand what he’s doing is beside the point — which is why the general rule of thumb for retail investors is to avoid options trading entirely.

There’s still a long tail on the GME drama only because a bunch of people who run /r/wsb are looking to milk the whole thing for what it’s worth. The whole game was already over by the time the mainstream press even mentioned Reddit.

Oh I don't blame him even a bit. I'm just confused by the folklore going on around this situation. I even had livid leftist friends calling me to tell me about the end of the capitalism and libertarian friends excited about sticking it to the establishment.

That was not my impression but maybe I got it wrong and maybe they are right. Nevertheless I enjoyed the saga, I don't trade. It's too stressful for me when I have a skin in the game.

The great irony is that the establishment ended up winning the whole thing. Your leftist friends may still be right though — 2021 has only just started!

S/he apparently hasn't posted because of possible investigations. If posting daily is perceived as influencing investors, then an investigator looking for someone to blame, would go after such a person.

He is already testifying before Congress. He's not exactly hidden.

Watch for a request for an immunity deal. Objectively this guy should be in a ton of trouble.

For what? Surely it is legal to have an opinion about stocks?

For securities fraud. If he was (as it seems there is some evidence to show) selling at the same time he was boosting a stock, he wasn't expressing a sincerely held opinion. He was executing a pump and dump.

I mean, yes, it's possible the guy simply timed this perfectly, promoted a stock based on an understanding that was technically incorrect but genuinely held, and did nothing wrong. But nine times in ten, that's not how it works. The incentives to cheat in this space are, obviously, huge. And that's why we have an SEC with law enforcement powers.

I remain amazed at the amount of credence WSB is giving this fundamentally anonymous yahoo on the internet. You'll at least grant that there are people who want to scam you in the same way that this guy did, right?

I hope he stopped posting just so that he could move his money to a different account/investment - obviously you don't want that cash sitting in the broker's account just to make pretty progress screenshots.

He could have exited for tens of millions (somewhere around 30 or 40) but held. As for my own two cents, he wasn't holding to make a point or pump the stock, but was instead sticking to his guns and following his own publicized strategy of not entering or exiting a position all at once. People read too much into his screenshots without bothering to know much else about him (e.g. his YouTube channel).

edit for clarity: The 13+ million that he did exit with is therefore a smaller chunk of what he could have made.

He was up nearly $50M at one point. When he was posting daily updates you could cleary see he sold some and derisked himself by cashing out $13M, and that was clearly noticed and discussed in the highest upvoted comments, but the fact that he was also letting another $37M still ride was true (and crazy...diamond hands indeed...)

The same thing happened in March 2020. r/wsb was filled with people holding spy puts when VIX hit 80. They kept saying diamond hands as if the entire market is going to zero because of “quad witching” expiry. It’s a recurring theme.

s/investors/speculators/

there's nothing wrong with gambling, but call it for what it is.

> "... he took out a $20,000 personal loan and used it to purchase shares."

> "... a personal loan with an 11.19% interest rate ..."

I'll repost my comment on this from 15 days ago. Not well received at the time (in the middle of the frenzy). Not sure why...I always assumed that HN has an audience that is decent at math and analytical thinking. Here it is:

What nobody is talking about yet are the thousands (tens of thousands? hundreds of thousands? millions?) of people who got hurt and will get hurt by this event. Sure, it's neat to see stories of people making from tens of thousands to millions of dollars due to the short squeeze. And yet it is easy to forget that those who played the game were buying GME all the way up to $500 one day, $420 the next day and $300-something the next. People also bought puts at different levels.

All of this will come crashing down on top of them. It's a Ponzi scheme (or whatever the appropriate analogy might be). The people who, through hubris and ignorance, bought these stocks chasing them up the price scale to "Help our brothers who bought at $350 get positive" and other encouragement found on r/wallstreetbets are going to get shafted (if they haven't already).

In other words, the institutional short sellers are not the only ones who lost money. The difference is, they KNOW they can win.

Why?

Because there is no way GME is worth $200, $300, $400, $500 or $1,000. At some point in the future gravity will do its thing and this stock will suffer a violent crash. And you can bet there will be short sellers there to profit from it. And you can bet a large number of people who are hoping to get rich quickly are going to lose unimaginable amounts of money.

Today's addition to this 15-day old comment:

We already know at least one fund made $700 million on this fiasco. For some strange reason the stock is holding around $50 these days. Here's a company that lost four billion dollars in the past four or five quarters with a stock that might not even be worth 1/10 of current levels. And people are still playing the game (or being played). As I said two weeks ago: Gravity will eventually do what gravity does. I don't know why people think they can magically violate the laws of physics.

I think your comment was not well received because it compares the stock market to laws of physics and gravity, limits GME investor psychology to a) hubris or b) ignorance, describes a market exchange as a Ponzi scheme, proposes that millions of people may have been hurt by this event without defining what hurt means, and (now) expresses the view that anyone who is decent at mathematical or analytical thinking would automatically agree with you.

If what happened with GME does not prove all of my points I am not sure what will convince those who don't see it.

Surely you understand that my use of terms like "gravity" and "Ponzi scheme" is in the mode of imagery, illustrations. If I must clarify:

Gravity: What goes up comes down. What goes up very high without a basis in reality WILL come crashing down. It is an inescapable force.

Ponzi scheme: A large base of people (many layers of them) are defrauded into jumping into an investment that is doomed to fail (refer to "gravity"). Only a few at the top of the pyramid make money. Everyone else loses big.

Hubris: OK, stupidity, ignorance, innocence, misguidedness, etc. Pick one. Hubris happens to be the most benign. Perhaps people were too excited to engage their brains. It doesn't change the reality that they did not engage their brains. So, I am calling it "hubris" to be nice. The correct term would be far harsher than that.

Ignorance: Nobody who understood what was going on would have taken that side of the trade. I knew exactly what was going on. I watched it go into the 400's and bough a bunch of puts. Laughed all the way down. Even if it kept going and reached $1K, I would have made money (refer to "gravity").

Those who pumped it up that high were not displaying great intellectual capacity, and they paid for it.

Hurt: Lost money. Lost their savings. Committed suicide. Had heart attacks. Got divorced. Lost money they could not lose.

Mathematical and analytical thinking: Yeah. I stand by that 100%. When the second derivative of the stock price with respect to time is, well, ridiculous, without an equally impressive reason to support it there is one thing we know without a shadow of a doubt: It will come down just as fast and hard (refer to "gravity") and you better be waiting for the other side to buy put options and not a part of the front side of that spike.

Like it or not stocks have to mean-revert to a reasonable mathematical calculation related to actual valuation. Sure, there are corner cases here and there, but they are few when compared to the average market P/E ratio of about 25:1. A one billion to 1 change in the P/E ratio (whatever GME was, it was ridiculous) in a few days doesn't pass physics or math.

And, yes, anyone who doesn't agree with me based on these facts should refrain from throwing money at the stock market.

EDIT:

Anyone who lost money with GME was not being intelligent when making those decisions. They can't even claim they were victims. Pick any adjective that pleases you, "intelligent" isn't one of them. The folks who understood what was going on (see "gravity") and acted accordingly are the intelligent ones.

This might not be a nice thing to be told. And yet the best lessons are sometimes learned harshly. I hope everyone who got hurt in this event is able to eventually recover and then come back to the market as thinking investors and not as part of an unthinking mob.

Scott Galloway met a lot of backlash on Twitter for his take on the GameStop debacle but I’m starting to think he’s right:

https://twitter.com/profgalloway/status/1354532507723640835

There are a lot of frustrated men who spend most of their weekdays staring at a stock price go up and down and then post about it on Reddit instead of doing something productive. There’s no motivation to save money to buy a house with your significant other.

There are simpler explanations that don't rely on the strange and sex-obsessed assumption that everyone who did something foolish is an incel.

The impossibility of gaining a modest return on your savings without risking it in stocks is enough for me.

https://archive.is/6iyuz

Obviously no easy answer, but isn't the GME stock still overvalued? Right now it's at $53.

By the fundamentals yes.

Are people betting the long game? Trend from digital to physical game is going to reverse and raise the used market again? I think that’s a big jump..

It is. It was less than $10 6 months ago and in those 6 months there is nothing Gamestop did to increase the value of their company by nearly five fold, other than be the focal point of a massive pump and dump.

Gamestop was undervalued, and this was a market correction

I wouldn't bet your paycheck on that guess. Many did. Almost all of them lost.

On a somewhat more pleasant note wrt the company, they've been picking up ex-Amazon(AWS specifically) leadership to try and transform the company for the modern digital gaming market.

Whether this'll be successful or not we'll have to see but I think the company definitely has the potential to turn around and offer themselves as a decent digital storefront.

https://www.datacenterdynamics.com/en/news/gamestop-hires-aw...

I don't see why microsoft, playstation, or nintendo need the middleman of gamestop when they all each have their own digital storefronts directly under their own control. If you are gamestop, this is the line you have to tow and tell shareholders, because there isn't a viable route otherwise. that doesn't necessarily mean what they say they are working on is going to work, or that they even believe it will work for much longer than it takes for the C-level team to have one good quarter under their belt and find a new job before the thumbs they put in the dam can no longer keep it from bursting.

Instead of admitting they got manipulated into a pump and dump, many will try to rationalize their loss saying things like "I'm not selling, MSM badly wants the stock to tank so the shorts get covered." (in a comment below). This is the disbelief phase.

I'm honored that you quoted me! I'm down like $800 with a 7 figure net worth. And I like the stock to boot! Why would I sell?

Edit: I have plenty of karma to burn. Stay mad (though what has you people so worked up? I have no idea)

Edit2 since I'm throttled: I think the idea that it's time for me to make a judgment one way or another on the effectiveness of the investment is a fallacy in itself. I don't invest that way. It would take at least a year for me to reach a point where I am ready to say whether any given investment was a bad or good one.

Are you sure you represent the average?

I would certainly hope I don't!

I believe the point stands regardless of your net worth. People come up with rationalizations to smooth over the ego-stinging admission that they were somebody else's greater fool. Your net worth relative to your loss may be yet another rationalization. Instead of, "I was wrong," it's, "Well, it's only $X anyway."

But maybe time will prove you right. If you truly believe that, should you risk more of your money on $GME?

As a total investor layperson who doesn't own any stock†, I don't think so. The current price seems about right.

• The pandemic is temporary and retail stores will re-open.

• Gamestop isn't bankrupt and doesn't have mountains of debt.

• There will be people who still want to buy physical games—whether for their resale value, or as collectibles, or because downloading 100GB on a slow internet connection sucks.

• Gamestop should be able to leverage their brand to increase their online presence.

I don't understand why they were so heavily shorted before, and I do think the redditors had a good investment case (early-on, before things went nuts).

---

† I have some money in index funds, and some in an account managed by a professional broker. But nothing I personally selected.

I think the short case is pretty obvious - basically a re-run of blockbuster.

I do think they can adapt and survive as a business, but i doubt they have a future of growth or big profitability.

> i doubt they have a future of growth or big profitability.

Oh, I agree. But prior to the recent craze it seems as though many were treating them as a failed company. Gamestop isn't Blackberry, or JCPenny.

>Gamestop isn't Blackberry

You'll never guess what other company WSB loves pumping

It's twice its value in 2016 despite revenue falling significantly pre-covid and accumulating a lot of debt.

Reddit investors may have had a good investment case at 4 dollars (basically assuming it won't go bankrupt). But it could right-size and enjoy modest growth in online sales and still not be worth what it is now.

People buying physical games don't need gamestop to keep buying physical games. They can buy them at target or walmart when they are there grocery shopping, or ship them for free from amazon. People buying used games and systems also aren't generally going to turn to gamestop and their overpriced junk, like they would have 15 years ago, now that online marketplaces, both local and national, have matured. Consider used games with an active market, like Super Smash Brothers Melee which still commands $50 used, aren't even sold at gamestop anymore and haven't been for years. They don't have anything older than the previous generation system, and of that past generation they will probably not have great inventory of popular titles, so retro buyers aren't even going there to begin with. It's dead retail walking and they do nothing unique.

> People buying physical games don't need gamestop to keep buying physical games. They can buy them at target or walmart when they are there grocery shopping, or ship them for free from amazon.

Sure, but what has changed between now and five years ago?

Offerup, letgo, swappa, venmo, cash app.

Very rational explanation of your position. Unfortunately, it goes against the approved narrative of the thread. So take your downvotes and move on.

It is, but so is Tesla, Apple, Amazon and others. Value stocks are almost always driven by cult believers.

One of these is not like the other. I'd argue that AAPL and AMZN are far more fairly valued than TSLA, a stock that moves by two percentage points whenever Elon Musk tweets erratically, and somehow has a larger market cap than diversified automakers with multiple factories around the world versus a tent in Freemont.

The funny thing about "value" stocks is that they go up only if someone desires to buy them more then you want to hold them. In the case of "income" stocks, their value is intrinsic in their dividend yields. Buying "value" stocks of any company is just gambling in my view, unless they have a strong potential of returning dividends in the near term.

That assumes it wasn't undervalued before. I remember seeing one estimate from December-ish that it should have been around $60, though I don't remember how they came up with that.

They probably came up with that by buying at a price less than that

Why do we call these practices "investments"? They're literally gambling.

A fool and his money...

nice try but it's far from over. they didn't close their positions.

Anybody have a workaround for the paywall?

well, when the bad players write more illegal stock to bail themselves out and that's allowed, they are just pushing the problem down the road.

It sucks because a lot of the loses in the FTA could've been avoided. The highest gain and lowest lost of the SPY respectively have been 16% and 20%. As a personal rule any stock I purchase basically has a stop loss of 20%. As for the gain, I automatically sell after a 50% gain. How much more could you want?

edit: this is in the context of day trading

re: 50% gain, why not use a trailing stop loss at that point? If I'm trading/investing it's to make money so I want as much as I can get.

I agree in general but GME was highly volatile and execution is not guaranteed with a trailing stop loss, I think in general you're correct but I was talking about the anecdotes specifically in FTA.

When engaging in options trading, startup investments, penny stocks, and other Black Swan strategies, you can be in a situation where you most all your money 90% of the time, but 10% of the investments have a 100x return. If you pursue this risky strategy, you need to be able to hold on in the face of volatility and sky-high gains.

I wouldn't recommend this strategy to anyone who doesn't have Vulcan-level discipline over their emotions, but it is a valid investment strategy.

I agree, but from FTA someone took out a 12% loan and got in at $234. The price ended up closing around $360 a day or two later representing a 50% increase - considering the person took out a loan, seemed like a no brainer to me. ymmv

If everyone used stop losses, they wouldn't work for anyone. You need someone else to buy your share for you to sell. There has to be a bag holder.

There's no loss until the stock is sold. Personally, I'm holding mine and I'm only down a bit right now. I see no reason to sell. MSM badly wants the stock to tank so the shorts get covered. Won't happen.

look you're welcome to your opinion, but by looking at longevity of memes on the internet and all the facts from financial reports, the dream's dead.

So you're denying that there's still significant short interest on GME? You're certainly welcome to take that position if you'd like!

Edit: And as for your comment below, there isn't enough downward momentum for the shorts to be covered as of now. Just opening a short position is quite dangerous, and mathematically, this is not over yet. That's a fact. I also don't gamble with money I can't afford to lose. GME could go to 0 and I wouldn't bat an eye.

Edit again since I'm throttled: I think the idea that it's time for me to make a judgment one way or another on the effectiveness of the investment is a fallacy in itself. I don't invest that way. It would take at least a year for me to reach a point where I am ready to say whether any given investment was a bad or good one.

i'm saying the momentum that drove tons of buy orders pushing the price up is gone. therefore there's no significant danger to short positions.

look, i've been there before, lost significant money (down payment for a house in sf type money) making big YOLO bets... you gotta extricate yourself from the emotions and cut your losses at some point and move on.

Nah I'm set

You might as well say it's a 100% loss until you sell. After all, it's money you can't spend.

Technically you get dividends.

GameStop has not paid out a dividend since March 2019. So, not even that.

No, you don't. Not for a company that is making zero profit.

That's not how investment works.

Neither of the absurd oversimplifications the two of us have offered are how investment works. That was kind of my point.

That said, I still think my provocation is more on point. See: opportunity cost.

Your comments may be absurd, but mine are based on my actual investment strategy. You’re just yelling at a guy who is doing his thing.

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