1. WSB was created before Robinhood was released.
2. WSB started as a place for people to discuss more risky strategies than what was being discussed on r/investing
3. Yes. There is no movement. WSB is not your personal army.
I don't think the stock market serves a public function with these mechanisms in place and needs further regulation.
Gamestop is one of those companies where the demise has been severely delayed IMO; they could've seen the future years ago but chose to stay with their legacy business of selling games in physical stores. Online game stores do what they do but with much lower costs and a much better business model.
There are two ways forward for Gamestop IMO but neither is very positive:
- They try to compete with the giants in the online gaming market, like Steam. I can't see them bootstrap their way into that, Steam and the others have too much network effect going on and GME has not shown any real talent in the online/tech domain.
- They try to revitalize their offline presence. I don't see this happening either. There has been a decades long trend of everything moving from off- to on-line and I don't see that changing anytime soon.
For anyone who agrees with the above assessment, the conclusion would be that the future for Gamestop is not very bright. Depending on the timescale you think it is going to play out, being short is an entirely valid position to be in. Personally, I think the sentimental memories of the ~25-~45 years old generation will keep it alive for a decade or so more.
Maybe it's just my personal preferences, but I can't imagine myself or anyone I know buying enough "gaming merchandise" in significant numbers. If I need a game, it's either digital, or physical through amazon with same day delivery. It's the same with other gaming-related merchandise. I go for whatever's cheaper/on sale, which is usually bestbuy or amazon.
Maybe they will offer a simoler api to nfts and transactions?
C was $564.10 at the end of 2006. By early 2009 it was $10.20 - that's about a 98.2% reduction in the stock price. That's a much larger destruction of capital than GME ever was.
So it wasn't the stock price falling that brought the company low, it was the company failing that brought the stock price low.
If anything, selling short needs to be made easier as it represents an essential corrective. And this ultimately serves the greater good too as it ensures that the price of a stock is correct and investors don't overpay, which will inevitably lead to losses for them. A good recent example of what happens otherwise is Wirecard. In 2019 the German BaFin enacted a ban on short sales in the stock of the company after reports had been published that were essentially accusing them of fraud. In the end, those reports turned out to be true, and the company collapsed less than 18 months later. The stock fell from over EUR 150 to virtually zero and investors lost pretty much everything. They should have listened to the short sellers rather than fight them.
There are also no "easy profits" in short selling. They only make money if they are right. There are people who have been calling for the immediate collapse of Tesla for the last decade or so. Others have been trying to short Amazon, Google, Apple, Microsoft, because they think that these companies are completely overvalues. Most of these people are probably bankrupt by now.
But GME isn't any of those companies. They are a failing brick and mortar retailer that is boxed in by Steam on one side and Amazon on the other. They have repeatedly attempted to transform the company over the last decade without success. The fact that their plan is to launch some NFT market place, a field in which they have no experience and that is already crowded by established players like OpenSea, demonstrates how much their management is completely out of ideas. And if the shorts make money from the GME stock, it just means they were right.
For example: you can't go to the bakery, borrow a loaf of bread, sell it to a passing punter, and then pay the baker at 5pm when they drop the price to get rid of their stock before it goes stale.
The rest of the economy manages to find the "correct" price for things without shorts. So could the stock market.
For some reason people think borrowing a stock and selling it is some super nefarious plot to kill companies, but apart from some special circumstances like secondary offerings or employee equity compensation there is really no reason a company should worry overly much about their stock price. If the company keeps making a profit, no amount of short selling can make it go bankrupt.
If you sell empty bags on the street, promising the buyers there is bread inside, only to collect those empty bags back when the buyers throw the (supposed) bread away because it became worthless, is not good business. You're the only one profiting, both the bakers and the buyers are loosing money.
A short seller making a bet that a stock goes down by selling the stock is simply the same (but in reverse) as someone betting the stock will go up by buying a stock. The underlying business is not affected at all.
(And before someone jumps in to give me the speech about how the future of civilization depends on market makers being able to fabricate shares long enough to cover: Yes, I know about the exception that permits this. The purpose of my comment was just to clarify what the argument was and that the parent of this comment was not replying to it.)
Is it? Who's purpose?
The main purpose of an IPO is (was?) financing. IE, raising money for the company operations... like a bank loan, VC investment, etc. In practice, many of today's IPOs are companies that don't need to raise money (anymore). For those companies, their main purpose when doing an IPO is usually liquidity. IE, letting founders, investors and such cash their shares... or continue owning them with the added benefit of market prices to validate the value of their wealth.
Your argument is quite mainstream, but I can't see how anyone would make it except to justify short selling. It seems to me there's a lot of "you sure about that?" in the whole thing.
Are you sure "finding the correct price" is an actual need? Who needs this, and why? Are you sure short selling makes for better prices?
Liquidity is a similar argument made in favour of derivative HFT and such. I also think its (probably/usually) quite bogus. Do stock markets even have liquidity problems? Stocks are insanely liquid. That's what they're for.
Investors (as opposed to speculators) and anyone interested in general economic efficiency.
After the IPO, a stock ultimately represents a claim on a future revenue stream, and as such the "proper value" would be the (proportional) NPV of the company's future income. To the extent the market price doesn't reflect this, it represents inefficient allocation of investment resources.
Unlike bonds, an equity's future income is very hard to predict, so providing that pricing information, along with liquidity, is what ostensibly distinguishes Wall Street from a casino.
Personally, I don't care about short selling. I trace the root of the problem to the fact that dividends are taxed much more harshly than capital gains because capital gains don't incur taxes until sale, so they compound better. This incentivizes mature companies to retain earnings and grow through M&A (including of competitors), leading to this glorious present of megaconglomerates and oligopolies we are now living in. My prescription would be to incentivize dividends and discourage retained earnings so that some connection to reality is re-established in the market.
Another of the many problems with megaconglomerates, aside from them being anticompetitive, is that it is much harder to accurately predict the combined future income of 100 aggregated businesses than just one, so their very existence distorts prices all the more.
Loosely, I think corporations should have a progressive income tax based on net income (defined in such a way as to prevent Hollywood-style games) or maybe market cap, to disincentivize getting huge and to encourage divestment. Dividends, I believe, usually already have a nominally lower tax rate than capital gains, but the fundamental problem is related to compounding. I therefore think the capital gains rate should be much, much higher and the dividends rate probably somewhat lower.
I disagree since that would give people decision making capabilities who are the least qualified to do so.
> And this ultimately serves the greater good too
You can believe that but you also don't have to.
We don't have to lie to ourselves. Stocks are highly emotional and investors regularly overpay when they buy into hype. I am not against short selling, it is a trade like any other. But let's keep things honest.
It's unclear why investing in the belief something is overvalued demands a different or larger set of decision making capabilities than the belief is it undervalued.
You’re describing accelerating creative destruction. It’s painful but good. Prevent it entirely and you cause stagnation.
We can make the human impact more compassionate. But trying to stop it is folly.
It exists, but it isn't a permanent feature of the big fish economy that stock markets represent. There are processes like online travel retail overtaking travel agenting. That's a sort of creative destruction. Mostly though, travel agents were an SME sector. Like the proverbial (and literal) restaurant trade, they're subject to market forces in this way and the theory often plays out in practice. Heavy price competition. Creative destruction. Etc.
Banking OTOH, doesn't really have a creative destruction dynamic to speak of. Most auto manufacturers are what and who they were 20 or 50 years ago. Big tech, also, doesn't compete like restaurants do. It's more about holding control via network effects, platforms or whatnot. Avoiding head to head competition and market price dynamics entirely.
GME fell somewhere in the middle. They're kind of restaurant like, but also relatively big and publicly traded.
In any case, the financial meta game can often be more relevant and determinant of reality than market dynamics as per Schumpeter, JS Mill and the like.
Schumpeterian creative destruction is an ideal. But the process of innovation it describes is well documented in the study of entrepreneurship, venture capital, new firm formation and the industrial dynamic of new entrance.
> isn't a permanent feature of the big fish economy that stock markets represent
Most of the stock market isn’t Goliaths. Formation and destruction still reigns in most of the economy. There, short sellers add value. (I’m more sceptical of private equity and its leverage tactics.)
> Banking OTOH, doesn't really have a creative destruction dynamic to speak of. Most auto manufacturers are what and who they were 20 or 50 years ago
Banking and auto manufacturers share a history in being bailed out. Big Tech looks like a classic market failure, though Facebook’s stumbling gives me pause on that conclusion.
I'm not sure we disagree, at least not much.
What I meant is that descriptions/theories/models/takes^ such as these are an ideal, I agree. The extent to which this ideal describes what appears to be a dominant process in the part of the world we're describing varies.
What I'm (halfheartedly) arguing is that the Schumpeterian description currently, isn't so dominant. At least, it's not dominant enough to be the basis for understanding short selling... I don't believe. In fact, the share price of a company isn't necessarily very important to the operation of the company... in theory. Short selling is, also in theory, not necessarily all that impactful on share prices.
>>Banking and auto manufacturers share a history in being bailed out.
True, but again, this is markets in practice. The long term, perfect free market ideals are not something that generally exist in reality for a lot of reasons... both good and bad depending on your perspectives.
I don't think Schumpeter meant for his ideas to apply only in hypothetical markets. Creative destruction was as a powerful force, for example, in the early decades of auto manufacturing. Banking has always been somewhat perplexing to economists, who can't really agree on whether or not they should be considered "firms."
We might disagree about short sellers vs leveraged buyouts. I'm more skeptical of short selling and derivatives value add, more willing to entertain the idea that leveraged buyouts have a useful role. At least leveraged buyouts relate directly to financing business activities.
^Economists, atm, seem to like the term "story."
Additionally creative destruction can also mean that I destroy the wealth of those that currently do profit from canceling companies prematurely. It is applicable to economies rebuilding after a war, not applicable to Gamestop. That is an excuse for exploitation.
the "advantage" here is that the true value of the company is reflected in the market, so that capital is allocated to the best companies rather than the most hyped ones.
>That is more parasitic than constructive
Can you explain how it's "parasitic"?
>Additionally creative destruction can also mean that I destroy the wealth of those that currently do profit from canceling companies prematurely
Isn't that what happens if someone thinks a stock will go down, shorts it, and gets it wrong?
There is this aspect, true - and necessary. An equal folly is to believe this is the only thing, or even the only significant thing, going on.
The purpose is precisely to zoom in on the correct value of a stock (via crowdsourcing and putting your money where your mouth is), and thereby allow investment to flow to the most advantageous opportunities.
IMO, it was kind of an exemplifier of postmodernism, used colloquially. All the "beat down hedgies" stuff was just part of the game, just like "fuck the fundamentals" was part of the game.
IMO it has had an influence. A neurotic, dramatic lens through which we can look at financial institutions, more abstract economics. What is capital? What is money? Etc. Obviously, it all happens within a context with crypto, a long term bull market, and such. I think one of the features of being a basket case, meme-ish phenomenon is a sort of openness to ideas. Mentality-wise it allows exploring concepts with the vigour of a believer, but without really being bought into the position long term. Meme trading, and maybe trading generally, kind of lends to this. You can believe a "case" a hold the position with caveat.
As is typical of "movements" today, there is no expectation of winning... just as there is no expectation that market rationality "wins." Everything, in our times, is a "just so story," in economic rhetoric terms.