Hedge fund vs gamestop

[Latenighthoughts]

Can someone please explain the situation and stocks to me? Dp has bought shares and highly invested into this situation. He seems to think were going to be millionaires from it (great if so) but my knowledge isnt extensive enough and I'm worried he is getting his head lost in the clouds. How realistic is it that he would come out with money? Is there any risk or losing it ( he is convincing me not). He seems to never have any money at the moment to buy dc anything but he keeps miraculously buying these shares

I have only read a brief bit about it all but it was a month or so ago wasn’t it? Did he buy at the very beginning or recently? The latter and I’d be surprised if he makes anything tbh. The former, he should have cashed out already?

I thought GME was pumped about 6 weeks ago?!

@MammaMiaWallace sorry what does pumped mean?

@Brogues I believe he bought some at the very beginning and his been buying more throughout

You make money in shares by either buying and selling at the right times (sell at a higher price than you paid) or via dividends (the company pays an amount to each of its shareholders - noting that not every type of share pays dividends, and a company has to be making money to be able to pay dividends)

If a company is performing well (or if dividends are expected soon etc) then there will be interest in purchasing shares and their value rises (or if dividends are expected soon etc)
If a company is performing badly the price will drop, people may be selling to avoid further loss and the price falls.

A speculator may want to buy up shares when the price has dropped, if it continues to drop then they lose out. If it turns around (possibly because people are buying cheap shares) the price rises again.
The gamble then is to make a quick profit or stay for the long term and hope for a steady rise

www.moneysavingexpert.com/savings/cheap-online-sharedealing/

[quote Latenighthoughts]@Brogues I believe he bought some at the very beginning and his been buying more throughout[/quote]
Has he sold any though? You’ve got to buy at the right time AND sell at the right time to make money. I thought that particular ship had sailed weeks ago.

Game stops share price dropped due to business, attention was raised on forums and the geeks bought shares - the price rose because shares were being bought

This generated humour and attention brag the geeks had ‘beaten’ the stock market. But it’s the day to day reality of the stock market

Hedge funds are a gamble, where part of it is to ‘borrow’ shares and sell them - forcing the price down, then buying them and profiting for the hedge fund.
The hedge funds plan to manipulate the market was ruined by geek publicity where they profited instead - and the hedge fund still must buy back the shares at a loss.
The hedge fund went bust. So people lost money - that’s still how the market works. The end user with the ultimate loss could be a rich trader or businessman, an ordinary person or someone’s pension fund etc

GameStop as a company is either ‘saved’ and it’s shares will stabilise, or could face a future drop again.

[quote Latenighthoughts]@Brogues I believe he bought some at the very beginning and his been buying more throughout[/quote]
If still buying then he is giving other people their profits.
On paper he may appear to be in profit but it doesn’t happen until he sells

I'm a very smalltime investor but have made £200 on it so far (now sold shares and withdrawn) and I'm keeping an eye on the price, if it gets to me previous low buying price again I might take another punt, possibly longer term

@Brogues he sold some, took some money out to save I think and then used the remaining to buy more

@Tommika I'm still trying to wrap my head around it thankyou for the in depth description. So to summarise because loads of people bought the shares the prices went up meaning they got even more excited and bought more. So it doesnt necessarily mean they are going to get more money? I believe dp is waiting for hedgefund and the market to crumble, then he thinks there will be a surge called the gamma squeeze and that when the big figures will happen

I know someone who bought early. He joined in to piss off the hedge fund which was what it was all about at the start
He made money but has already sold. The price was inflated because of the number of people buying. I think your H has misunderstood and missed the boat

Only problem as to why I am sceptical is because the predicted date for this money making moment keeps seeming to move! He is constantly watching the stocks and reading updates, and gets his Hope's up when something major happens only for nothing to come of it

@TwoBreakingIntoOne this is exactly what I'm worried about! He seems to think there is going to be a massive increase in the stocks and he is holding out on it. He thinks no one knows this is going to happen but all the analytical research he is doing (reading so called experts on reddit and watching data analysis) claims that it's going to happen and everyone is missing out. I mean if it does that's great but I'm seriously concerned he is getting too carried away with this and we need to be more realistic about our future for dc sake.

OP, if your DH does not understand stocks and hedge funds he really should not be buying these shares. I don’t want to patronise - it is hugely complex. I understand all of the terms and I still would not invest my money like that. also, no one should buy shares in only one company - unless you own the company and work in it.

This particular play was due to a Reddit article which encouraged small investors to buy GameStop shares to “stick it to the man” - I’m paraphrasing. Now I am a great believer in taking down hedge funds, the rise of gambling pretending to be banking in the past 30 years is nothing short of shocking. However, the investors who bought in didn’t not have the knowledge of when to sell - many did and these people made money, but got first time investors, this was a very high risk first time venture.

I hope your DH only invested what he can afford to lose. Many people jumped in to relieve the boredom of lockdown - these people will not get their money back.

Sorry - using my phone . I hope you can understand the garbled message.

Talk to your DH and make sure he has only invested small change that you can afford to lose, not your retirement fund.

The GS ship has sailed if he's still got them he has missed out. It was an unnatural situation that was never sustainable.

Yeah, the Gamestop thing was never a good investment, it was entirely a way to mess with short sellers. An artificial bubble was created, and like all bubbles it will burst. (If indeed it hasn't already.)

Short sellers are unpopular because they benefit from a company's misfortune. When shops and factories are closing and people are losing their jobs, shorters are raking it in. This therefore gives short sellers an incentive to try and make companies fail, but it's doubtful they can actually do that.

/r/wallstreetbets (the subreddit that bought GameStop shares) has been going for years, they'll move on to another company soon. They might have done that already, I don't follow their news.

If your dh is just spending a little to fuck with the short sellers then I wouldn't worry. However, if he's investing huge sums and not quite understanding what's going on then that's concerning.

@Annasgirl by all means I'm not saying dp doesnt have a clue about what he is doing, it's me that is the confused one! He does try to explain to me things but in all honesty I switch off it's just lots of big words I dont understand and the same old thing. My main concern here is that he will lose money which is has told me in confidence he wont. And that we dont really have the money he has invested

@SionnachRua the problem is it's not clear to me how much he is spending because he seems to be constantly selling and buying more. He has told me best be it to could go up to 100,000 a share. Worst it will go up to a couple of grand which would still help us. He said he only bought them when the priced dropped, so about 40 a share? But then he told me he has 29 in total so I'm trying to do the math here

[quote Latenighthoughts]@Tommika I'm still trying to wrap my head around it thankyou for the in depth description. So to summarise because loads of people bought the shares the prices went up meaning they got even more excited and bought more. So it doesnt necessarily mean they are going to get more money? I believe dp is waiting for hedgefund and the market to crumble, then he thinks there will be a surge called the gamma squeeze and that when the big figures will happen[/quote]
If he's bought some, sold and kept some then he's making money provided that he sells at a higher price then he bought it for originally
(and allowing for trading fees etc)

The risk with him holding shares now is that the price drops. If there's a crashing drop then he loses on his current value. If others are buying back and the price rises then he wins if it sells for more than he paid.

Throughout the day prices rise and fall, so he can theoretically make a bit here and there. Big money only happens when something drastic happens, or over the long term. If he bought at a low enough price then there's scope to make profit.
But its only going to go up an astounding rate if people rush into buying lots of shares.

finance.yahoo.com/quote/GME?p=GME

I'm long out of the loop, a gamma squeeze is one of the 'panic' price drops and rises.

As a student I made a killing on low value shares, but sadly it was just pretend. We were to select shares with pretend money and monitor the prices each day. All very easy in theory - 'bought' a selection of rock bottom shares, then sell a few days later when it went up a few pence, then buy more bottom shares. No risk when its all pretend

How realistic is it that he would come out with money? Is there any risk or losing it (he is convincing me not).

Rule number one of investing in the stock market: never ever spend money you cannot afford to lose.

Because, yes, the money your DP invested could be lost. All of it, most, a little. Profit is not guaranteed.

As for your first question, that depends on where in the bubble your DP bought the shares.

Here's an example:

The shares of company A are today trading at £3. This is below the underlying real value of the business.

One month ago the share was worth £30, a price which reflected the real value of the business. A bubble then drove the price up to £300.

If you bought a share at the height of the bubble, at £300, your nominal loss is £297 (nominal because as long as you hold the shares, you have not realised the loss.) You spent £300 for something that is now worth only £3. You can keep the shares in the hope that it will rise, but as the high price of £300 was caused by a bubble, this is highly unlikely to result in a profit. At best, you can hope to minimise your loss (by for instance selling at £100 if it ever gets that high again, but as the underlying real value of the share is currently only £30 this may take years).

The reason why we can assume it will not rise back to £300 is because a share price is typically based on the underlying value of the business: the real money value of its trade and assets.

A bubble is a stockmarket frenzy which drives the price up not because the company is worth more, but because many people want these shares. This creates a situation where you have too much demand and too little supply. And the price goes up, up, up.

At some point however people stop buying and start selling. Because the underlying value is much lower than the price these shares were traded at during the height of the bubble, the price typically keeps falling until it reflects the real value again.

But not while the bubble bursts. During that time too many people try to sell, this means too much supply and too little demand typically drive the price far below the share's actual value.

If you bought at £30, you have also made a nominal loss, but as this reflected the real value of the business, you have a decent chance of avoiding any loss by waiting for the share price to recover to that point.

If however you now buy a share at £3, you reasonably could expect to make a profit if the share price recovers back to reflect the real value.

(Bear in mind that a huge drop in share price can have a detrimental impact on a business, and recovery is not guaranteed.)

For an overview of what happened with the GameStop shares, the article I link to below tries to give a narrative account of how the stock went up and then down again and what happened to retail investors like your DP (some made a little money, some lost a little. Some made lots of money and some lost a lot).

www.gq-magazine.co.uk/lifestyle/article/gamestop-stock-oral-history

I believe that it is highly unlikely that GameStop shares can be manipulated again to rise as high as they did in January. They are still about 20 times higher than they were before the redditors manipulated the price. (In my view they were undervalued at $3, but I doubt they are worth the over $60 they are sitting at now.)