Okay this is probably embarrassing but for posterity, laughs, and making lemonade out of lemons, here is how I lost 14% in less than half an hour trying to be greedy with the whole GameStop drama.
What’s going on with GameStop’s stock?
For the uninitiated, GameStop (stock ticker $GME) is a video game retail chain in America. With the increasing shift to digital distribution of games, GameStop’s business has been on the decline for years, and the impact of Covid-19 has further led to its stock price going down over the past year.
As such, hedge funds have swooped in, shorting the stock as they believe that the price would go down. This involves selling the stock at the current price, $10 for example, before buying the stock a while later at say $8 to cover their position. They earn the difference of $2 per stock shorted.
If the price goes up, however, short sellers stand to make a loss, as these hedge funds soon experienced. Redditors banded together and bought the stock, driving the stock price up so dramatically. Short sellers have lost billions as a result, exacerbated by how over-shorted the stock was and people all over the world hopping on to buy the stock for a quick buck.
It’s a currently ongoing war of sorts between billion-dollar hedge funds and the everyday person on the street, with this one of the rare times the big boys are punished for their greed… or are they?
All aboard the $GME rocket launch 🚀🚀
So where does a relatively risk averse Seth – the one who puts significant amounts of money into 2% insurance savings accounts and only buys index funds – come in?
Given my overall conservative investment portfolio, I allow myself to make speculative bets from time to time for fun, and wow was this as speculative as it was fun.
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The US market opened on 28th January, and as the stock shot up I placed order via my trading account to buy at the market price… and it did so at $413. Well damn it it was below $400 just mere moments ago, I muttered to myself, but no matter; the stock was going to the moon! Took off it did… and then choked, sputtered, and came back down rather hard.
26 minutes later, I got out at $355, and shortly after that I thanked my semi-lucky stars as it went all the way down to $126. Alternate title to this post could well be How I Lost >50% in 45 minutes 🤷🏻♂️
$GME did recover a little after that, going back up to $200+ and even $300 briefly, and it may well shoot up again as this saga continues, but I think it’s Game Stop for me.
Here are some takeaways I have from this once in a blue moon scenario.
Big boys almost always win
Unfortunately, I think big billion-dollar companies are always going to win. Citing restrictions from their clearing firms, various trading apps and platforms have stopped traders from buying $GME, causing the stock price to drop and many to accuse them of protecting billion-dollar investment companies.
Also, it takes many people to go up against giant Wall Street institutions, and I think it’s evident it’s really difficult for a mob to act cohesively in its best interests. Despite chants on Twitter, Reddit and other social networks to “HODL” and “have diamond hands”*, individuals tend to act disparately in an attempt to maximise their own gains (yours truly included, punished enough with my loss 🥲).
It’s game theory playing out in real life, and in my opinion, anything that requires a lot of people to go up against big, powerful entities tends to fail to gain critical mass sufficient for the revolution to succeed.
Hedge funds are opening new short positions as I write this.
Most games are over when you/I learn of it
People who got in early are probably still sitting on a pretty profit for now, assuming they haven’t already cashed out at the stock’s peaks. People who greedily (ahem, it’s me again) entered at inflated prices of an already inflated stock, well.
I have paper hands*
This isn’t really for the faint of hearts, and I am indeed quite fainthearted. I take little joy in being 15% up, but the same number in the other direction tends to make me feel uneasy.
Loss aversion isn’t super healthy, of course, but this was probably going too far in the other extreme. Maybe I’ve learnt my lesson for next time, and this set of paper hands is going back to index funds and watching paint dry.
HODL – intentional misspelling for hold, i.e. hold the stock
diamond/paper hands – diamond hands hold stock with great resolve, and paper hands sell because they can’t take the heat
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