Everyone loves a David vs Goliath story. The little guy sticking it to the bully, the underdog getting the win. It’s understandable that many people got excited about the crazy market activity in stocks like GameStop and AMC. These companies, seemingly hanging on by a thread after Covid, looked like they were doomed. But then, seemingly out of nowhere, these stocks started to see their price jump to mind bending levels.
Join Financial Advisor Tim Russell, CFP® and Rev. Drew Gysi as they discuss what really happened with GameStop and WallStreetBets.
See the show notes here!
Learn more at: StewardologyPodcast.com
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Get in touch with us at: Contact@StewardologyPodcast.com
or call us at: (800) 688-5800
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A ministry of Life Financial Group & Life Institute.
Securities and Advisory Services offered through GENEOS WEALTH MANAGEMENT, INC. Member FINRA and SIPC
Everyone loves a David vs Goliath story. The little guy sticking it to the bully, the underdog getting the win. It’s understandable that many people got excited about the crazy market activity in stocks like GameStop and AMC. These companies, seemingly hanging on by a thread after Covid, looked like they were doomed. But then, seemingly out of nowhere, these stocks started to see their price jump to mind bending levels.
Join Financial Advisor Tim Russell, CFP® and Rev. Drew Gysi as they discuss what really happened with GameStop and WallStreetBets.
See the show notes here!
Learn more at: StewardologyPodcast.com
Schedule a Personal Stewardship Review at: StewardologyPodcast.com/Review
Get in touch with us at: Contact@StewardologyPodcast.com
or call us at: (800) 688-5800
Send us episode ideas! StewardologyPodcast.com/idea
Subscribe to get episodes delivered to your inbox every week.
Follow along: Facebook, Instagram
A ministry of Life Financial Group & Life Institute.
Securities and Advisory Services offered through GENEOS WEALTH MANAGEMENT, INC. Member FINRA and SIPC
Everyone loves a David vs Goliath story. The little guy sticking it to the bully, the underdog getting the win. It’s understandable that many people got excited about the crazy market activity in stocks like GameStop and AMC. These companies, seemingly hanging on by a thread after Covid, looked like they were doomed. But then, seemingly out of nowhere, these stocks started to see their price jump to mind bending levels.
In this episode, we are going to explore one of the most interesting investing stories in recent memory and discuss what lessons we can learn from what took place.
The Setting
Do you remember back in 2009 when a group called Occupy Wall Street tried to disrupt the markets? They held rallies near the NY Stock Exchange calling for more regulations and higher taxes. They claimed that the top 1% of wealthy Americans was stealing from the rest of the 99%. This group exposed a deep seated distrust for the “Wall Street Elite” in our culture. There were several factors leading to this movement.
Social Media has developed with Facebook and Reddit allowing everyday small investors to rally together around common investment themes and make an impact on the price of stocks.
The Characters
To understand what happened to GameStop, you have to understand some of the players or characters making predictions on the future value of the company.
How The Markets Work
To understand what happened next, you really have to understand some basic concepts of investing in stocks and the markets. The following description is for illustrative purposes only.
Wall Street’s “Smart” Bet
The sophisticated investors found what they thought was a “no lose” kind of opportunity with GameStop. This company predominantly sold physical video games, gaming consoles, and gaming accessories in its physical store locations all across the nation. With the advance of streaming technology and the success of online gaming platforms like Steam, the need for physical games and physical stores is declining fast. Add to this trend the impacts of COVID shutdowns causing revenue to drop like a lead balloon and you have the recipe for a company that seems likely to go out of business. Can you say Blockbuster Video?
If the company goes bankrupt, the stock would obviously take a big hit. This led several hedge funds to take a short position (short sell) in GME. Based on their thinking, this was as close to a “sure” bet as you can get. All they had to do was sit back and “let nature take its course.”
WallStreetBets Sees An Opportunity
There are those in the investing world who happen to think that GME was actually underpriced and was primed to surprise everyone. One particularly passionate investor was on a Reddit message board called Wallstreetbets. He was eventually able to convince enough individuals to give GME a chance. As more people bought shares, the price of GME started to rise. Other investors saw that there was a HUGE number of shares which were being shorted, many times the normally trading volume of the stock. This presented an amazing opportunity to create a “Short Squeeze Rally.”
A short squeeze rally is when the price of a highly shorted stock goes up causing some of those who are short the stock to have to exit their position by buying their shares back at a loss. The more people who buy the shares, the higher the price goes, the more the shorts trip over themselves to exit the stock, the higher the price goes. These rallies are intense and amazing to watch.
Since the majority of investors who had shorted GME were institutional investors and hedge funds, the Wallstreetbets community became excited about the narrative of “sticking it to the man.” They felt that they could cause massive damage to some of these old elite firms through GME. They thought they could make them pay for all the harm Wall Street caused during the 08-09 market crash.
In the end, many of the sophisticated investors lost billions of dollars. The early investors into GME became overnight millionaires. Many of the later investors who jumped into GME are now experiencing losses as the stock is well off its highs.
What is the Moral of the Story?
There are several lessons to be learned from this story. I really enjoyed watching all of this transpire. The markets are fascinating and exciting.
Biblical Application
In this section, we will review several verses/passages which address greed, get rich quick schemes, and how to build wealth.
GREED:
GET RICH QUICK SCHEMES:
HOW TO BUILD WEALTH:
Next Steps
Material presented is property of The Stewardology Podcast, a ministry of Life Financial Group and Life Institute. You may not copy, reproduce, modify, create derivative works, or exploit any content without the expressed written permission of The Stewardology Podcast. For more information, contact us at Contact@StewardologyPodcast.com or (800) 688-5800.
The topics discussed in this podcast are for general information only and are not intended to provide specific investment advice or recommendations. Investing and investment strategies involve risk including the potential loss of principal. Past performance is not a guarantee of future results.
Securities and advisory services offered through GWM, Inc Member FINRA/SIPC