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Only a couple weeks ago, I quoted the market aphorism, “In the short-run, the market is a voting machine, but in the long-run, it is a weighing machine.”
It comes to mind again now that Robinhood types are short squeezing hedge funds with GameStop (GME) and other nostalgia stocks.
It’s another example that any strategy that relies on valuation affecting prices in the short run (like stonks betting that GME would go down because it lacks a viable business) is incredibly risky. It’s also incredibly risky to bet that any trend driven by popularity will last. Eventually, there are going to be a lot of people who bought GameStop at incredibly inflated prices who also lose a lot of money.
If Donald Trump didn’t teach us that an incredible number of people can get together and vote for what is essentially a prank candidate or stock, blindsiding everyone who expects the world to be a rational place, we’re currently getting another lesson with GameStop.
At least this time around, the internet trolls are not playing games with the future of our country and the planet. If some overconfident Wall Street types lose their shirts to the trolls, I can get behind that. The only way to justify the ridiculous amounts of money most hedge fund managers are paid is by claiming that they are smart enough to outwit other market participants.
How’s that working out?
My only worry is that a lot of other people are going to be hurt in the crossfire. But I do hope GameStop’s managers have their act together enough to do a secondary offering before the bubble bursts. Even though it could be the secondary offering announcement itself that bursts the bubble.