Tesla, Bitcoin and now GME?
What the heck was going on for the past 6 months?
Stock market has been going up
and down like a roller coaster.
When you turn on your news, these three magic
letters seem to always pop up these days: GME.
So what is GME? What is this frenzy all about?
In this video, I want to give you
my version of this GME saga.
For those of you who have been following
the financial news, you should have seen
these keywords in the headlines a lot lately
GME, Robinhood, Reddit, wallstreetbets,
short selling, short squeezing, etc.
The story of GME in recent weeks has been one
of most fascinating stories in 2021 so far, it’s
basically the Avengers vs Thanos, David vs Goliath.
Disclaimer here though, I am just trying to
summarize this story in a simplified version,
so it might not reflect the entire story, and some
of the information might be missing or not
completely accurate as this story continues to unfold.
Whether you are already in or plan to join the game,
please do not make any investment
decisions based on this video.
You should do your own research
before you make any investment!
Before we dive into the story deeper,
let’s just briefly talk about GME first.
GME, or Game Stop Corporation, is an American
video game, consumer electronics, and
gaming merchandise retailer based in Texas.
Back in the old days when we use to go to the
shopping malls and physical stores for everything,
it was basically where all the gamers
would go to get their video games,
similar to our EB Games in Canada.
Just like lots of retail stores moving online,
video games are slowly shifted to online storefronts.
To no one’s surprise, GME’s sales started
to decline and so did their stock price.
Think of blockbusters,
they use to have retail stores all over the map,
but here comes Netflix and they are
basically eliminated overnight.
At one point, GME even dropped
to as low as $4 USD per share.
With the impact of COVID last year,
GME was forced to close even more storefronts
both within the States and internationally,
and had to make huge layoffs.
As a result, GME became the target
of short selling by many hedge funds.
You might ask so Thomas, what’s short selling?
To illustrate the concept of short selling,
let’s use this famous online example.
Let’s say right now there are 5 bananas in the
jungle and each costs $10 on the market.
One ape has 5 bananas, then there’s a snake
with no bananas but he still wants to invest,
The snake believes in the near future,
the bananas can be bought at a discount,
say instead of $10 dollars,
they will drop to $5 for each banana.
So right now, the snake borrows the
5 bananas from the ape for a while.
Snake then sells the 5 bananas at $10 each,
then when the banana is worth $5 dollars,
the snake buys the bananas back
and return them to the ape.
profit with no bananas to begin with.
Still following?
Let me break it down even more.
So basically, in a normal situation,
when you invest in a company, you want that
company to do well, so as its stock price goes up,
your shares are gonna worth more.
You want a win win situation.
However, if you are shorting the company,
you are making a profit by betting the
company will get screwed over.
So instead of a win win situation,
it’s a zero sum game.
Is this ethical? I leave it up to you to decide.
Whether this is ethical or not, this is exactly
what a lot of investment firms and hedge funds
are doing in the stock market to make money.
What’s more, because they control billions of dollars,
they have the advantage of driving the stock
price to the direction that they want.
They can control the media or release
analyst reports driving down the prices
of the stocks they are trying to short.
So what happens if the prices of those
bananas doesn’t go down but instead
goes up to say $20 per banana?
In that case, the snack has to folk out $20 dollars
to buy what’s available in the market so the
snake can return the bananas back to the ape.
And chances are if the jungle knows the
snake is desperately looking for bananas,
other animals will also hide the bananas to
make them less available on the market forcing the
snake to use even higher price to buy the bananas.
Back to the GME thing, so about 2 years ago,
GME has already become one of the short selling
targets of these investment companies.
However, since last year, people on this online
forum called wallstreetbets on reddit think that
GME still has a chance to turn their business
around if they can shift their business model
online and increase their online presence,
so their stock price shouldn’t be as low as it was.
This makes GME one of the more
popular stocks among retail investors.
At the end of January 2021, a famous short
seller named Andrew Left and his company
Citron Research initiated another attempt to
drive the price of GME down by saying their
stock price should be worth
no more than $20 USD per share.
Citing back to the story earlier
between the ape and the snake,
some redditors from wallstreetbets realized that
the number of bananas, or in this case the
amount of GME shares, that the snakes promised
to return to the apes, is already well over
the number of bananas available
for purchase on the market.
If the apes can come together and buy up
all the bananas on the market at this time,
the snake will have no choice but
to buy bananas from the apes,
in order to return the bananas that
they promised to return earlier.
Since the apes felt like the snake has been
Taking advantage of the apes in the jungle
all along, it’s time for the apes, or in this case
the retail investors, to fight back.
the apes still remember what happened in 2008,
it was the greed of these snakes
that caused the jungle to collapse.
Most apes lost their home but the snakes get to bail out
and it’s time to teach them a lesson.
Did this happen before?
Absolutely, but mainly between businesses,
where they rarely wanted each
other to be completely tapped out,
it’s just not at their best business interest.
So usually, they just get settled in the end.
But this time it’s different,
this time it’s the average joe vs titans.
Thanks to the internet, the average joe
teamed up together, and they want to
break the Wall Street peoples’ banks.
What’s interesting is the snake cannot
really look for negotiation this time,
because there isn’t a leader from the apes side,
there are millions of apes scattered
around the world and each of them
only own a small number of the bananas.
Next thing you know, the apes collectively
pushed the bananas’ price to 20 times the
price in January, meanwhile buying up
both the common shares and call options.
Call options are basically contracts that give
the apes the rights to buy shares of the
bananas in the future, and the reason they
do that is because they expect the future prices
of bananas to go higher, as opposed to the
snake’s bet of bananas’ price going lower.
This whole series of events drove up
the price of GME stock higher and higher,
at one point it was over $400 USD!
Many redditors have claimed that they’ve
become millionaires because of this,
with some people making even 1000x gains!
However, the Wall Street hedge fund
managers won’t just sit there and do nothing.
They continued to release reports and news
without anything concrete to backup their claims,
in an attempt to make retail investors
panic sell their stocks.
What’s more, they’ve teamed up with major
stock brokerages to set limits on how many
shares retail investors can buy for some of the
highly discussed stocks on wallstreetbets.
In the end, they’ve successfully driven down
the stock price of GME down to under $100 USD
at the time I was making this video,
but this incidence of barring retail investors
on buying shares of certain companies
clearly violated the Competition Act.
Some senators have already asked lawmakers
and SEC to step in, and file an investigation
against trading platforms such as Robinhood,
so we shall see how this plays out.
This battle is far from over.
Some people think this is just the beginning of
a long term battle between retail investors
and billionaires on Wall Street.
As of now though, Citron Research has publicly
declared that they will discontinue short selling
research after 20 years of publishing,
meanwhile some of the hedge funds have lost
billions of dollars due to this GME short squeeze.
It appears that the apes have
won round 1 of the battle,
but how will this play out is anybody’s guess.
So what does this mean to all of us.
My two cents are not to over trust the news
and media, because they can be easily
manipulated by short sellers.
Certain news that targets specific companies
might be released with the goal to drive
down the price of those companies.
Always do your own research,
and don’t invest more than you can afford to lose.
Are you doing this as a hobby?
Or are you risking your entire life saving into this?
Remember before you invest,
you need to know which investment is only for
the short term, and which one is for the long term.
If you are not sure about what you are doing,
or you don’t like to deal with the market volatility,
it’s not a bad idea to just turn off the
news and walk away for a while.
All in all, it might be easier for you if
you talk to a professional to see what
kind of investments are right for you.
Alright, this is it for today.
Let me know what you think
about the Game Stop situation.
I hope you enjoyed this video.
If you think the apes are gonna win,
give this video a thumbs up,
or give it a thumbs down if you think
the snakes are gonna win.
Either way,
hope you’ve learned a thing or two today!
This is Thomas and
I will see you again in the next video!