Market Speculation and Attacks on Shorters

The UK stock market has been falling this week while rampant speculation continues in US markets. It seems there was an attack by retail investors, who follow such Reddit forums as WallStreetBets, on short sellers in GameStop. Even UK investors are getting involved. This is what one investor was reported as saying in the FT: “I saw chatter about GameStop earlier this year when the share price was still below $50. The narrative was about ‘sticking it to the man’ by targeting hedge funds which had shorted the stock, such as Melvin Capital and Citron Research. I didn’t know what shorting was at the time but thought it was pretty cool that small investors could have a large impact on big ones.”

The share price of GameStop was up 63% by 11.00 am US time yesterday. In other words, it’s a typical “short squeeze”. Their market cap is $22 billion with revenue of $5 billion but no profits. The share price might not be totally illogical. Gamestop is a video games and other products retailer and has over 5,000 retail stores, but it has been closing stores of late.

One definitely gets the feeling that there are lots of new, young, unsophisticated investors in the USA speculating in the market using zero commission trading platforms. Being in lockdown, perhaps that is one of the few ways to get some excitement in their lives.

They are also trading fractional amounts of shares rather like in the old “bucket shops” in the 1920s. The growth of spread betting and CFD trading also tells you that speculation is rampant and it’s not just in the USA. It’s also happening in the UK. There is a big encouragement to market manipulation by spreading stories about companies on bulletin boards. That’s not just for ramping up the share price of a company, but for driving it down to benefit shorters.

One name the FT article mentioned was that of Jesse Livermore, an expert in stock speculation in the 1920s. It’s worth reading his book (written under a pseudonym) with the title “Reminisces of a Stock Operator”. It will tell you how it is done. But bear in mind he went bust more than once and committed suicide after the final bust.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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