How the Internet Gamed Wall Street's Short Sellers

How the Internet Gamed Wall Street's Short Sellers

February 04, 2021
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You may have heard the news about stocks such as: Game Stop and AMC suddenly ballooning, quickly going from lunch money prices to several hundred dollars a share. In one case, the shares rose over 1700% since December 2020.1 

So, what gives?

Financial institutions make assumptions that certain downward-trending stocks will continue to move lower. They borrow shares, sell them, and if the price continues falling as anticipated, they then buy the shares back at the lower price. This is called “short-selling.”1

Some believe the “hockey stick” spike we’re seeing this week originated on Internet discussion boards, where traders are coordinating their efforts to disrupt the short-selling process. 

A hockey stick chart is a line chart in which a sharp increase occurs suddenly after a short period of inactivity. The line connecting the data points resembles a hockey stick. Hockey stick charts have been used in the world of business and as a visual to show dramatic shifts in activity.

Generally speaking, these traders make these moves for a variety of reasons. Some may be protesting against Wall Street. Others may simply be attempting to take economic advantage of the situation and make a “quick buck.”1

While this all makes for an interesting story, the truth is that this is something of a sideshow and a far cry from the investment strategies most investors use to further their retirement goals. 

My suggestion? What I tell my clients? Enjoy the show, but remember: you’re playing for the long haul. Never try to time the market. Slow and steady wins the race.

Have a question? Give me a call 1-888-812-0448

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