Business & Investment

wallstreetbets: View: Cry, Cheer, Ignore-What Should Indian Investors Do About What’s Happening to GameStop?Scared

Tracking trends in U.S. Penny stocks that have risen to over $ 33 billion in a few weeks with the help of individual investor social media campaigns to punish some hedge funds that have run out of stock Indian investors were amused or confused. In fact, they should be scared.

The pandemic has triggered governments and central banks around the world to invest $ 12 trillion in the economy. Money is substitutable. It doesn’t always stay where it is placed. Many individuals who have leisure and little excitement in their trapped lives spend their time investing in capital markets.Securities companies like Robinhood In the United States, new young investors are now trading online because they have zero transaction fees and are making money by selling data about what transactions are taking place on the platform.

All stock prices have risen due to the abundant liquidity wash through the financial system. Interest on US 10-year government bonds is about 1%. Applying such a low discount rate to a company’s future earnings flow to determine its current value leads to the impression that a high price-earnings ratio is perfectly reasonable. Rookie investors are seeing good returns and are financial geniuses who no longer feel the need for institutional means to bring their savings to the capital markets.

Such investors are physical retailers of games and compact discs. GameStop It was in short supply due to large-scale funds. What is a short? If the stock price is expected to fall, sign a contract to sell the stock at a price close to the current high, and if it falls, buy it cheaply and sell it to stupid people. Your contract. Suppose the stock is trading at 10 and you expect it to go down to 6. From now on, I will sign a contract to sell for 10 a month. If you find an idiot who is willing to accept the offer, buy it for 5 or 6, or 7 1 month later, sell it to the poor sap you bought at 10 o’clock.

However, there are risks. Let’s say the stock price doesn’t go down. Let’s say a lot of investors decide to buy a stock and raise its price. After that, short traders are desperate to buy the stock and prepare to sell it at the contract time. His purchase adds to the price increase. This is called a short squeeze.

This is what happened to GameStop. A lot of small traders got together Reddit forum WallStreetBets (Search for r / WallStreetBets), and decided to teach short traders lessons. Their move has caught up and the analyst-determined penny stock has no future and has become a star in the stock market. Short traders have lost billions and are licking their wounds.

Investors have launched similar purchases on other penny stocks such as AMC and cinema chains. Nokia And Blackberry.. Robin Hood imposed restrictions on these transactions, resulting in widespread backlash. Market regulator SEC is concerned that new Treasury Secretary Janet Yellen is monitoring the progress. And the individual investors who have achieved all this are excited. Their public friction has made Robin Hood merciless, and social media manipulation of stock prices is now a thing.

So what is it for us in India? In some respects we have to be careful. One is the general proposal that stock prices can be completely separated from a company’s performance in the real economy. Many stocks are already unrealistic as stocks sway up and down in the bubbling emotional layer at the top of the liquidity sea. However, the added social media buoyancy makes the whole thing even more volatile. With the exception of butterflies flapping in the Amazon jungle, prices have plummeted and the trigger can be anything. If a trading genius individual investor borrows money from a bank to drive market entry, a stock market crash can not only push IQ levels down to the trading floor, but also endanger bank money. There is. Moreover, when emotions are big enough and sour, the market can collapse. It will have a spillover effect around the world, including India.

Is there any unrelated party cooperation to manipulate the stock price? Is there a law against it without violating basic freedoms? Nothing changes in the basics, but collateral damage to a general market rout due to the escape of small traders from the US market, followed by some unfavorable developments that hurt retail sentiment. How can you protect your retail investors from?

These are the questions you should think about losing sleep. Even if it’s not Seattle, it’s true in Mumbai.

(Disclaimer: The opinions contained in this column are those of the author. The facts and opinions contained herein do not reflect the views of

wallstreetbets: View: Cry, Cheer, Ignore-What Should Indian Investors Do About What’s Happening to GameStop?Scared wallstreetbets: View: Cry, Cheer, Ignore-What Should Indian Investors Do About What’s Happening to GameStop?Scared

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