The frenzy surrounding GameStop seems to be winding down here this week, but we wanted to have one more conversation about it before moving on.
In this week’s video, Tom explains why this example of emotionally-charged short squeezing in GameStop is another good reason to work with a fee-only fiduciary advisor.
One More About GameStop – Transcript
Tom Mullooly: Can we have one more conversation about GameStop?
Welcome to the Mullooly Asset Show. I’m your host, Tom Mullooly and this is episode number 231. Thanks for tuning in. We’re recording this on a snow day, February 2nd, 2021 and along with the snow that’s falling GameStop stock is also falling at the moment. GameStop is down a $144. I’ll say that again, down a $144 to 80 bucks. As a reminder, yesterday, GameStop traded as high as $385 and on Friday, the stock traded at $419. Now think about this. In the last episode, number 230, I reminded viewers that these kind of short squeezes usually end in tears and this one will be no exception. Remember someone bought GameStop at $419 a share on Friday. That trade settles today and whoever bought that stock on Friday at 419, they’re down 81% on this trade.
Look, hedge funds and professionals who do this type of thing for a living, they do it all day long. They are never going to let a short position get away from them to the degree that GameStop traded away over the last week. The online crowd then moved over the weekend to start talking about silver and that got shut down, immediately. Understand that commodity exchanges will change margin requirements on the fly. They immediately stated Monday morning before trading opened, that they’re going to a 100% margin. That means you cannot margin, there’s no leverage when it comes to this. These commodity exchanges have this stuff down to a science. It works like bug spray. Those kind of short squeezes are dead on contact.
Incidentally, we did a podcast on Friday of last week to talk about the plumbing that goes on behind the time from the moment you press buy on your phone or your computer or you tell your broker or advisor buy or sell. We talk about, we laid it out exactly what happens, the plumbing behind these trades. This is why people need to work with an advisor, an experienced advisor, who understands the mechanics behind these trades. A sales rep, someone who’s working on commission they’re just going to take the order or someone online can just click a button and buy or sell these things without understanding the repercussions and the plumbing that goes on behind these transactions. A fee only investment advisor has got a fiduciary obligation. That is so important when you’re working with clients. These types of transactions really are financial suicide. Like I said, a lot of times they end in tears. Nobody really wants that, do they?
And by the way, this isn’t the first time and it won’t be the last time that these kind of short squeezes are going to happen. It hasn’t even been a year, do you guys remember Hertz Rent-A-Car? Remember Hertz, HTZ was the ticker symbol. That stock had been trading around 85 cents. It went to 20 in a short squeeze, it’s back to trading around under $2. Around the same time last summer, we had Eastman Kodak back from the dead. The stock went from $2 to 33 bucks. It’s now back in single digits again. If there is a good thing that came out of all of these kind of short squeezes, these kind of episodes, more and more people are learning about how markets operate and even people in our business are learning how markets operate. I’m honestly astonished that people in our line of work are admitting on social media that they didn’t understand the plumbing and the mechanics that go on once someone says buy or sell. That’s a little scary. Work with an experienced advisor or an experienced advisor team. It’s in your best interest.
That’s going to wrap up episode 231. Thanks again for tuning in. Talk to you next time.
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