(01-27-2021, 05:50 PM)jagibelieve Wrote:

(01-27-2021, 04:48 PM)mal234 Wrote: I remember when investing sites recommended Gamestop several weeks ago. It was very cheap then (under $15). I thought about buying some shares and adding to them but I didn't. One reason because they were having some bad publicity around this time. (I think due to Covid).

If I had bought shares I would have sold most of them this week. This stock's value along with some others people are running up is definitely inflated right now. I don,'t believe these stock prices.will hold. 



The people who will make money are people who thought these stocks would legitimately increase(like I could have done )and bought in at cheap prices. And are now selling them off.Or people who bought in when people started running them up artificially. It's a mistake for people to now start buying a bunch of these stocks at these way higher prices. If this happens and people hold too long they will lose money.

It goes further than that.

In all reality there was probably not very many people that thought that a business like Gamestop would be successful and have the price of the stock "legitimately" increase.  In all reality this company as well as many others were pretty much on their way out.

What drove the artificial run-up is the fact that many institutional investors were expecting the company to fold and go under (which it still will) so they shorted the stock.

I'll give a VERY basic example.  Say company XYZ's stock price is $20 per share.  The company is not doing well and is on the verge of folding.  If somebody shorts the stock for say 100 shares it means that they are "borrowing" the stock valued at $20 per share thinking that it's going to go down so they essentially "borrowed" $2000.00 ($20 x 100).  When the price drops to say $10 per share they "pay their debt" by buying 100 shares, but since the price dropped from $20 to $10 they only pay $1000 and made the other $1000 from shorting it.  That's a VERY basic example of how shorting a stock works.

Cue the day traders/gamblers on Reddit, Facebook and other platforms.  They decide to buy the stock which drives the price up.  The stock goes to say $30 per share so the institutions that shorted it have to "pay their debt" and end up losing $1000 since "paying their debt" means that they have to buy their 100 shares at market price ($30 per share).  This in turn creates more "demand" for the stock so the price continues to go up and the cycle continues.

The problem is that as the stock price goes up, people "buy in" and drive the stock price even higher.  However, the business model of the company is such that it loses money and is going to fold.  When that happens, people that own the stock will find out that it's basically worthless.

Again, this is a VERY BASIC explanation of what is happening.  If it's just one or two stocks it's not a big deal.  When it starts happening to groups of stocks it is a bigger deal.