Followers of our regular 4 Stocks Now column will likely have at least seen some of what's been happening using the short squeeze led through the WallStreetBets Redditors. This has led to wild fluctuations in stock prices, as well as caused widespread confusion and havoc on financial market participants.
TLDR form of what’s happened (which is really insufficient to give you a full picture):
- WallStreetBets (also known as /r/wallstreetbets or WSB) is a subreddit where participants discuss stock trades. According to online sources, it started long ago in 2012, but has evolved right into a \”working-class VS elites\” battle royale in recent weeks.
- In the current week, havoc has ensued being an army of Redditors led by WallStreetBets poured money right into a number of stocks – including more not mentioned in the following paragraphs – to cause a short squeeze.
- A short squeeze, as defined by Investopedia, is when stocks or other financial assets begin prices. This forces the short-sellers who have bet on prices going down to incur big losses AND forced to buy the very stocks these were shorting to avoid incurring even bigger losses.
- The reasons Redditors did this may range from YOLO-ing, to FOMO-ing, to joining a movement to \”F***\” hedge funds and wall street\”.
- Hedge fund Melvin Capital, rumoured to possess been holding a short position as high as 140% on GameStop has been forced to close its short position and its backers had to infuse US$3 billion into the fund. Some news sources put short sellers losses on GameStop at nearly US$20 billion this month.
- Elon Musk is in the fray as well – supporting the Reddit movement having a one-word tweet \”Gamestonk!!\”. Of course, Elon Musk's Tesla (NYSE: TSLA) has previously been a brief sell target for many funds.
- On another hand, billionaire investor Leon Cooperman gave a job interview where, among many other statements, was quoted as saying \”This fair share is a bullshit concept. It's just a way of attacking wealthy people, and i believe it's inappropriate\”. Such a quote, even when delivered with a mostly reasonable content, will always be taken in the worst possible way.
- Trading platforms such as Robinhood, and others, which branded themselves as \”for the man on the street\” as allegedly bent against pressure from wealth hedge fund owners Citadel to restrict the buying of target stocks within the name of protecting investors. Some point to this as the definition of market manipulation. The allegation is the fact that Robinhood derives a large amount of revenue from these hedge funds. This has been refuted by Robinhood CEO.
- The US Congress is going to be holding hearings on GameStop trading, with lots of proponents calling for a hearing on \”Robinhood's market manipulation\”
What happens next is anyone's guess. But everyone's eyes are on this. Before we get caught up (and write an actual news piece!), here are the 4 stocks backed by the Reddit Army:
Read Also: Selling Stocks You Don't Even Own – Should Short Selling Be produced Illegal?
GameStop (NYSE: GME)
Perhaps the most popular stock among all for this saga, GameStop (NYSE: GME) is exactly what really led the \”high street VS Wall Street\” movement.
Whether it's relevant or otherwise, GameStop is actually a gaming retailer with 5,509 stores over the US, Canada, Europe, and Australia.
The company sells video games, gaming consoles and computers, television sets, mobile phones, and other gadgets and accessories. COVID-19 delivered a setback as consumers avoided its outlets.
In its latest results, it delivered a revenue of US$6.5 billion in sales for FY2021, 22% down in the US$8.3 billion it achieved the year before. It lost US$464.4 million in FY2021, which was actually an improvement against FY2021, if this lost US$794.8 million.
Notwithstanding this, you can see its price was hovering around the US$4 to US$20 range within the last 6 months. It was only in the present 2-week period when it share price skyrocketed 1630% to US$325 a share. You may also see the wild swing among when it lost close to 40% of their value and then quickly gained it back the next day.
AMC Entertainment (NYSE: AMC)
AMC's (NYSE AMC) share price follows a very similar trajectory to GameStop's share price. Its share price was hovering between US$4 and US$2 previously 6 months before the current week. It then soared over 900% to close to $20.
For those who have heard of AMC but don't know what it will – here's why it was such a target for short-sellers. AMC operates over 1,000 theatres and has over 11,000 screens in 15 countries. It's a movie theatre chain.
It is precisely the type of business that COVID-19 has decimated. It was what attracted short-sellers.
In the first 1 / 2 of its FY2021, revenue fell over 65% to US$960.0 million. Just the halfway point in FY2021, additionally, it incurred a total loss of US$2.7 million, over a loss of US$150,000 in the whole of FY2021.
Nokia (NYSE: NOK)
Nokia (NYSE: NOK) is listed on the New York Stock Exchange (NYSE), on the Euronext Paris, and in its native Helsinki.
While it has also be a meme stock, it is unlike the sooner two stocks – in that it's not a stock that got battered because of COVID-19. In fact, the only way Nokia (and perhaps another meme stock Blackberry as well) is attracting attention from the Reddit army is because their stocks are becoming pummelled.
This legacy telecommunications stock gets another lease of life as its share price has recovered 41% from November 2021 lows. Notwithstanding this, the stock continues to be down from 6 months ago.
Uniquely, this shows that any stock getting hammered lower may become a target of Reddit rescuers, that will likely deter short sellers from in additional ways.
Top Glove (SGX: BVA)
Top Glove (SGX: BVA) has a secondary listed on Singapore's SGX. It is also a stock we've covered extensively in the past as a COVID-19 play. In the past couple of months, vaccination developments and other company-specific news has dragged the company's share price down.
As you can see in the 6-month chart, prices are sharply lower. However, the 5-days chart shows why Top Glove managed to get into this list. On 29 January, shares in Top Glove spiked sharply, by 10% to $2.22.
Also, in case you're wondering how WallStreetBets got wind of Top Glove within this part of the world, they didn't. What's happened is the fact that Redditors are coming alive globally, and also the movement has inspired Malaysians, with their own BursaBets, to invest heavily into Top Glove – a regular that has been battered in recent times.
Do Not Blindly Invest
While it's admirable for small retail investors to band together to defend myself against the world's largest hedge funds, we must remember that we still owe our future selves a retirement plan. Putting some cash into YOLO or FOMO or to stick it to the rich can be fun and romanticised – but it does not replace prudent financial investment for the long-term. We also have to consider the possibility the reality that we are being duped right into a pump and dumb scheme.
Perhaps the easiest method to stick it to the rich would be to always buy from small local companies, even if they are more expensive. If we want to and also have the stomach to do it with thousands of dollars, why not support a real small company owned by someone you know in your community.