To be clear up front: I’m no expert on the stock market. Once upon a time I used to buy stock shares (directly where possible) with the investment strategy of buying shares of companies with low P/E ratios that sold high-dividend stocks. So I owned quite a few different utility stocks, since they often fit that description, and would take the dividends as additional shares. I still own a very modest portfolio in the successor company to that which I used to accomplish these trades, although it’s locked away in a money market fund that I haven’t touched in probably a decade. While I doubt I could buy dinner for my wife and I with the total, I keep the accounts grandfathered there in the hope that someday I may invest in these again.
In brief, the backstory behind the occasional “pumpin and dumpin” series was the junk faxes my onetime and present employer would get – somehow we got onto a list where, a few times a week, we would be regaled by news of the next big stock they claimed was about to break. So I got curious and collected a sampling just to see how they really did and, in most of the cases, the only break they made was downward. (It really got bad four years later when I last revisited the subject.) I got a lot of great comments out of the series, which occurred back about this time the website was at its peak readership as a non-lucrative side hustle of mine.
Since then, however, the office fax machine has been retired and I really don’t get that sort of e-mail anymore. People have moved on to another grift, I suppose, and in the case of Gamestop it was interesting because the tables were turned on the relatives of these companies that used to make their money speculating on those folks P.T. Barnum claimed were born every minute.
Some hedge fund (or group of hedge funds) is apparently out billions of dollars, or will be as long as they can’t stave off their margin call. Betting that Gamestop stock may further plummet to a buck or two a share, they are now desperately hurting because a group of allied renegade traders have instead pumped that baby up to $300 or more a share. That may be an awesome windfall for the investor who got it for 11 bucks a share two years ago (and watched it eventually slide to under $3) but it’s now becoming a parlor game that has nothing to do with the long-term prospects of the company, which (as the name suggests) makes its money by selling video games and consoles, mostly in brick-and-mortar locations. (In a previous life I serviced several of their stores on a regular basis, so I have something of a familiarity with their business.) I couldn’t even fathom what the P/E ratio is for them right now, but if I were a Gamestop employee I would be frightened out of my wits because they are playing with my livelihood.
Certainly the company has a tremendous market capitalization at the moment, but it’s a mirage that they will have to deal with long-term. It’s also concerning when you consider that these hedge funds were essentially betting on the company drifting into insolvency – in case you haven’t heard, the retail sector isn’t doing so hot right now.
I suppose what bothers me most about this whole situation is the rooting for failure aspect – moreso for the hedge funds that were betting on Gamestop’s demise. (After all, isn’t this shorting approach similar to how George Soros became a billionaire?) And while the Reddit group orchestrating the surge in Gamestop stock has the noble idea of punishing the hedge fund, they’re not going to stop the game from going on – in fact, they may eventually find they’ve infringed more on the free market thanks to Uncle Sam covering the big boys’ bets by being restrictive on the ability of like-minded groups to manipulate share prices. (It’s okay when their chosen ones do it, though. For them, the stock market is an investment where they will capitalize on their profits and socialize their losses, while for the rest of us it’s more of a gamble like buying a Mega Millions ticket.)
Finally, it brings me to troubling questions: is the Dow really worth 30,000? How much of that is real value and how much is rampant speculation?
I recall back a half-dozen years ago, when I was barely getting back on my feet after a long interregnum of non-career jobs, that the relative success of the stock market was hailed as the sign the overall economy was strong. (Never mind millions of people were still out of work and had given up looking.) The ones who were prospering, though, were the shysters who arranged for some people to get “disability” because they couldn’t find a job at their advanced age. In other words, the perceived value of the Dow Jones and NASDAQ was a mirage that was covered by increasing debt and someone was going to be left holding the bag.
In that respect, I can see the point of view of the hedge funds because they also see the same thing I do. But I hate rooting against the success of businesses built upon the sweat and toil of someone who worked long hours to make their dream a reality. It was their quest to succeed and draw investors which led them to sell shares in their companies. Granted, for every Tesla or Apple there are thousands of companies who were the (witting or unwitting) subjects of being pumped and dumped like the beneficiaries of those long-ago junk faxes. Alas, dreams, sweat, and toil don’t always lead to success if the product doesn’t sell. (As an author, I know how that goes all too well.)
It’s highly likely for the best that I never became a day trader like a former co-worker of mine was. (I suspect that’s why he was a relatively brief co-worker, since the firm wasn’t paying him to watch a stock ticker.) The whole Gamestop affair has convinced me even more that the system has become perverted and rigged in favor of those who have friends in the right places. Yet, without a good alternative method of saving for retirement besides the old 401.k (since few have pensions anymore and we all know Social Security is a Ponzi scheme) I guess we are forced to grin and bear it.
I’m so ready for real financial reform, but I suppose that has to get in line behind rightsizing government and we all know where that lies on the list of priorities. Maybe these Gamestop traders can work on that next?
Update: Thomas Gallatin, my cohort at The Patriot Post, weighs in with a similar take to mine. Great minds?