What does GameStop's skyrocketing stock have to do with a subreddit?
10:15

What does GameStop's skyrocketing stock have to do with a subreddit?

Stock Market
To help me break down what exactly is going on with the GameStop stock, the shorting all of this, I brought on my very close friend, CBS News, business analyst Jill Schlesinger to help me understand just what the hell is going on. There's something called short selling. Short selling is really weird. It's like a bet against the company. So here's what you do. I wanna sell the GameStop stock. I have to go borrow 100 shares from my my brokerage company I borrow the stock And then I sell it. So, net-net it looks like I'm minus 100, okay, that's my bet against the stock. What's important here, the borrowing part. Because when you borrow something you owe it back in the future. What I'm hoping is I sell game stock when it's $10 a share, and I buy it back when it's $1. Right, fantastic. Now what happens when the stock goes up? Every day It looks like I made a really bad bet because my the stock I sold a 10 when it goes to 15,20, I'm showing losses and losses and losses. And when you do that on a huge scale when you sell a stock short What you really have to hope for is that you have enough collateral margin that you can cover losses that you incur. What happened with GameStop is there are these big huge companies who thought This is a company that's overvalued. That's it. It's not a bet against like the specific people who are bad people, good people or anything. I bet this company is overvalued and I sold it. And that's really how we entered into this current situation. So short sellers said we're against it. And then all of a sudden comes Reddit. Now, do you wanna talk about what happened on the Reddit, the sub Reddit that got the people going? Yeah, so I understand a little bit of that. There was this a very popular subreddit called wall street bets that had some big players there, sort of Highlighting the fact that wall street seems to be shorting this stock in a big way. We could probably make some money by collectively buying a lot of the stock watching it and have it go up. That's exactly it.>>Right and at the same time kind of Kind of jazz for ->> **** those guys, right ->> Financial institutions that went so hard on shorting this time ->> Right and just to be clear, like they're not bad because they're short sellers. short selling is good for the market. Some people think a stock goes up. Some people think it's overvalued, that's actually really good. It's called price discovery. It's very good for markets. But in this- Right, and because it helps uncover bad actors, right, it helps uncover- Absolutely, and if you remember in the housing crisis I'm sure that everybody sort of revelled in the idea of people setting against the housing market. They seemed like geniuses in the aftermath in every story that came out, we liked those people. So It's not that short sellers are bad. But what's fascinating about this to me is that you have a group of people on Reddit who are like, hey, let's jam these dudes up. And here's how you do it. Now, there's nothing illegal about that. Unless the people who are saying, hey, go out and do this have some sort of inside information, which I don't think they did, but there's gonna be an investigation. Sure. So there's no doubt right? It doesn't seem to be apparent. I mean, it's not like these guys were like, I know the GameStop is about to be acquired by Apple. Do you know what I mean? That would be a huge thing that you would not disclose. So then it's just almost like crowdsourcing an idea. Hey, let's all get together, there's a bunch of short sellers. If you buy this Either with options, derivatives, or with the stock itself, what we can do is we can make those short sellers really uncomfortable. And when they get really uncomfortable, they have two choices that the hand more money over to the investment company where they borrow the stock that's margin. So they have to have like essentially just think of it as collateral. They've got to have collateral in account. Or they have to buy back the shares they sold. The very fact that they buy the shares back is self perpetuating pushes the stock even higher and that's why it's called a short squeeze. Because you're squeezed you're feeling like my god like the hands are coming around my throat. This trade is exploding in my face and I have to cover it. By the way, I was a trader in my former career. And when I sold short it was always so scary. [CROSSTALK] Because, when you think about selling short you have an unlimited downside stocks, or commodities or anything can keep going up and up and up. If you are a buyer, the worst you can do is go to zero. Right because your initial risk, the worst thing that could happen is you lose your initial investment when you buy a stock when you short a stock. If that other is the other direction keeps going north, you are liable for infinity Absolutely you have an unlimited downside risk is what we say in the business. And you know, I just think this whole story is weird and I'm saying it's fun for me to talk about because like I said, I'm a former trader, my first job on wall street I So, well, I mean, my first job was like doing this all the time, right? I was a gold, silver and copper options trader. Okay. And that's 150 years ago that I did that. And now today to have this idea that like someone from you know, CNET or someone from CBS, the network is asking me Should I do a story about GameStop? I'm like, Okay. But like, you know, there's still 10 million people out of work. So there is a strange feeling that I have in talking about this where we have this whole economy that is still so shaky right now and there's so few people who actually own stock. I don't know if everyone gets this but like, essentially about 48% of this country does not own a stock, does not own a mutual fund, And couldn't care less about what we're talking about. I know you care about it and it is an interesting story I'm just saying that this isn't the only thing there's a lot of other things going on right now. What do you say to the idea of like there is a bit of a tinge of sort of income inequality justice that's kinda happening with what's going on? Well I think what's kind of interesting is that it brings to light a division in the investing world which we used to call retail versus institutional. Mm-hm. Now, a million years ago, we used to call smart money versus dumb money. Meaning that you and me, we are the dumb money people. We are like regular schlubs We buy a stock we buy a mutual fund, but the institutional people, the hedge funds, the private equity funds, the big money managers, they're the smart money. And I think what makes this kind of a delicious story for small investors. It's like No, **** you Mister or Missis running your big headphone like we can move markets too. You can moving markets for the last hundred years. It's our turn. I think the one aspect of it that is somewhat worrisome Is that if you have a bunch of people who are sort of in a mobish sort of way, taking that to another level because we understand now that some of these big [INAUDIBLE] Have been threatened and people have hacked into their accounts and they're like creeping out their family members Guys come down Right there's no Yeah, no one no one is doing anything awful in that respect. And these are perfectly legitimate businesses. They really are. It is true that some short sellers basically agitate to get seats on boards, to gut companies to do all those things. Same thing and private equity. They're good ones. They're bad ones and they're there and at the end of the day, They're all trying to do one thing. They're trying to make money. And if the smaller and retail investors out there are pushing them in different ways, I mean, it's sort of like I said, it's a delicious aspect of the story. But to me it's just old school. It's like some people think this thing is worth this, other people think it's worth this and a lot of shorts have gotten squeezed out of trades that are far more interesting than this one. As long as there was not Any insider information, as long as there was no market manipulation as long as they didn't get people to like, invest and promise them something in return, like let's presume that everything was legit Then it's two people taking two sides of a trade. No one's right no one's wrong. The market just determined that the short guys got squeezed. For all I know all these people who bought this company are going to end up crying their tears cuz if they don't sell right now, they could see all those gains slip away. It's just a market. The market doesn't really discriminate. It's good. It's bad you win you lose. So one thing that I do want to point out because I wouldn't be your Aunt Jill if I didn't tell you this right for everyone watching if you are interested in doing things like this It is dangerous. It's dangerous to short stock. It's dangerous to buy options when you don't know how options work. It's dangerous. If you want to be like, sort of participating in something, and you think it's cool and you want to learn something, take the amount of money that you feel like you can lose. That's what you should do. I think the best part of this whole thing Is the sort of massive educational moment, that it's sort of been investments and owning stock has sort of been this club that maybe has not had the accessibility That people learn a lot about what is truly going on with these financial institutions. And any moment that better educates the masses on what really goes on, I think is a net positive. Here's a great idea to end on. Okay, let's say you just made a crapload of money in GameStop. Let's just say you're one of the lucky people. Here's what I'm going to encourage you to do. Sell your stock. Okay? Take some money off the table and donate it to your local food bank. [BLANK_AUDIO]

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