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Oh...Stock Market Tantrum!
5 years ago
General
“My past is not a memory, it’s a force at my back. It pushes and steers. I may not always like where it leads me, but like any story the past needs resolution. What’s past, is prologue.”
So Ive been watching this Gamestop, AMC thing happen, pretty much as it happens and I have a few thoughts. I started playing the stock market a little over a year ago actively, even made $5,200 in gains last year. small but a good start for my first year doing this...at least I think so anyway.
Now there's plenty of explanations out there of what's actually going on so I wont go into it but it has to do with market traders (people like me) and hedge fund companies who are made up of many much more experienced traders who pool their money together, and in many cases, borrow money to do their trading. One tool they use is called shorting stocks. Its an extremely risky move that can end up losing a lot of money for the person trying it.
My mother used to dissuade me from playing the stock market at all because she thought that you can end up owing money. now under normal circumstances, she was wrong about that. I can lose money but no more than what I put in...unless I try to short a stock.
I've never liked the idea of shorting a stock, because you're basically betting on the failure of a company (at least that's the way I see it). Betting on someone's failure doesn't set well with me. Id much rather bet on someone's success and Id like to see stock shorting become an illegal market strategy. Not only is it risky and can lose you a lot of money if not ruin you, I also find it a very greasy practice for the above reason.
I do, however, see a problem with the way these reddit users are doing this. Sure they're panicking hedge fund participants who favor shorting stocks as a strategy, and that's fine. but people often forget the law of cause and effect.
Here's where I see the danger, and understand I'm not just seeing it for the big wigs of the stock market world, and im not buying their pity party, but I'm seeing it for the people doing this:
1: there inevitably has to be a ceiling. There's going to come a point where the people doing this are going to hit that ceiling. Ive been hearing all day that the hedge funds who practice shorting are being left holding the bag. sure, true. but once that ceiling hits, the people that got on the band wagon to late will also be holding the bag. Some people are putting their life savings into this. What happens if they come in too late, buy Gamestop at say $400 a share and then it immediately snaps back to where it was? what then? even many retail traders are going to end up losing a crap ton of money behaving this way and some people may not be able to put a sell order in time to limit those losses.
2: Do you honestly believe there wont be a proportionate response to this? this is basically market manipulation. Unlike traditional manipulation such as that Martin Shkreli pulled with his company a few years back, this is basically a coordinated attack and because its unprecedented, there may not be a law set that covers it. What do I see happening? a few things. one...apparently a lot of these apps like Robinhood and such are in part behind this. I see those either getting shutdown outright or at the very least heavily regulated to the point where they lose like, 90% of their functionality, and any new companies offering apps like them unable to offer anything but basic functionality, no options trading or anything like that.
3: The person that started this will very likely be hunted down and prosecuted for the heavy losses they caused by triggering this. they've cost a lot of people a lot of money who already have a lot of money at their disposal.
4: new laws preventing exactly what's been happening this week will be put in place to prevent it from ever happening again, likely effecting small traders who are doing things the honest way, making it far harder to get ahead.
5: Companies like gamestop often will apply for loans to help with things like product development, expansion, technology research and such. Part of how investors and banks determine whether they're approved for those loans or not, if they have a stock offering, will often look at how much of a stock is owned out of the pool and how liquid they are. Locking up and shooting a stock price as unnaturally high as Gamestop is right now for instance, makes it less likely that they're going to be approved for a loan, because they're going to know that that price is unnaturally high and its going to count as a negative and they may not be approved for the loan, putting a company at risk of shutting down...a company you may adore.
I totally understand wanting to "stick it to the man" and beat him at his own game, but be careful not to go too far. you might end up effecting more people than you realize, including people that go to work for these companies at the worker level that just want to work their 40 hours and go home...in other words, job loss.
Now there's plenty of explanations out there of what's actually going on so I wont go into it but it has to do with market traders (people like me) and hedge fund companies who are made up of many much more experienced traders who pool their money together, and in many cases, borrow money to do their trading. One tool they use is called shorting stocks. Its an extremely risky move that can end up losing a lot of money for the person trying it.
My mother used to dissuade me from playing the stock market at all because she thought that you can end up owing money. now under normal circumstances, she was wrong about that. I can lose money but no more than what I put in...unless I try to short a stock.
I've never liked the idea of shorting a stock, because you're basically betting on the failure of a company (at least that's the way I see it). Betting on someone's failure doesn't set well with me. Id much rather bet on someone's success and Id like to see stock shorting become an illegal market strategy. Not only is it risky and can lose you a lot of money if not ruin you, I also find it a very greasy practice for the above reason.
I do, however, see a problem with the way these reddit users are doing this. Sure they're panicking hedge fund participants who favor shorting stocks as a strategy, and that's fine. but people often forget the law of cause and effect.
Here's where I see the danger, and understand I'm not just seeing it for the big wigs of the stock market world, and im not buying their pity party, but I'm seeing it for the people doing this:
1: there inevitably has to be a ceiling. There's going to come a point where the people doing this are going to hit that ceiling. Ive been hearing all day that the hedge funds who practice shorting are being left holding the bag. sure, true. but once that ceiling hits, the people that got on the band wagon to late will also be holding the bag. Some people are putting their life savings into this. What happens if they come in too late, buy Gamestop at say $400 a share and then it immediately snaps back to where it was? what then? even many retail traders are going to end up losing a crap ton of money behaving this way and some people may not be able to put a sell order in time to limit those losses.
2: Do you honestly believe there wont be a proportionate response to this? this is basically market manipulation. Unlike traditional manipulation such as that Martin Shkreli pulled with his company a few years back, this is basically a coordinated attack and because its unprecedented, there may not be a law set that covers it. What do I see happening? a few things. one...apparently a lot of these apps like Robinhood and such are in part behind this. I see those either getting shutdown outright or at the very least heavily regulated to the point where they lose like, 90% of their functionality, and any new companies offering apps like them unable to offer anything but basic functionality, no options trading or anything like that.
3: The person that started this will very likely be hunted down and prosecuted for the heavy losses they caused by triggering this. they've cost a lot of people a lot of money who already have a lot of money at their disposal.
4: new laws preventing exactly what's been happening this week will be put in place to prevent it from ever happening again, likely effecting small traders who are doing things the honest way, making it far harder to get ahead.
5: Companies like gamestop often will apply for loans to help with things like product development, expansion, technology research and such. Part of how investors and banks determine whether they're approved for those loans or not, if they have a stock offering, will often look at how much of a stock is owned out of the pool and how liquid they are. Locking up and shooting a stock price as unnaturally high as Gamestop is right now for instance, makes it less likely that they're going to be approved for a loan, because they're going to know that that price is unnaturally high and its going to count as a negative and they may not be approved for the loan, putting a company at risk of shutting down...a company you may adore.
I totally understand wanting to "stick it to the man" and beat him at his own game, but be careful not to go too far. you might end up effecting more people than you realize, including people that go to work for these companies at the worker level that just want to work their 40 hours and go home...in other words, job loss.
