After notching triple- or even quadruple-digit gains in just weeks, it appears the the honeymoon may be over. In recent days, meme stocks (i.e., stocks heavily influenced by people online) like GameStop (GME -3.56%), AMC Entertainment (AMC -8.03%), and others have come crashing down, losing the bulk of their recent gains. This has many investors wondering what's next.
In this video clip from Motley Fool Live, recorded on Jan. 28, "The Wrap" host Jason Hall and Fool.com contributors Danny Vena and Dan Caplinger discuss the ongoing short squeeze phenomenon and the tug-of-war between longs and shorts, leaving Wall Street caught in the spotlight.
Jason Hall: Pointless prognostication. Pointless prognostication is always fun and this gives us a chance to talk about GameStop, guys. How fun does this sound? I'm going to throw up a chart here, I'm going to do a quick screen share. I'm going to do a screen share here. Just some context. So GameStop's stock today, and it wasn't just GameStop, there's this huge group of companies that are in the short squeeze WallStreetBets, you've got AMC Entertainment, Express (EXPR -4.71%), Bed Bath & Beyond (BBBY -9.94%). You've got just these legacy retailers, movie theater chain. Then you've got iRobot (IRBT -1.16%) and Genius Brands (GNUS -4.97%), the penny-stock, third-tier, garbage kids cartoon maker. I'm sorry, the stuff's junk and I won't let my four-year-old watch it.
Anyway, highly shorted stocks. They all went to the moon. The reckoning started today, or did the reckoning start? I just want to show these numbers again here. Again, this is what happened today. This is from the high. Express lost 58%, GameStop fell 57%. AMC fell 56% from the high.
Here's my question, because we can look at that. We have to ask, is this the beginning of the end? Because there has to be a lot of retail investors that bought on the upside at a much higher price than where things are closing today and now they're starting to feel the pain. So my question is, is this the end? Or is this going to go from phenomenon to part of how people invest and trade going forward? Danny Vena.
Danny Vena: I'm going to say that this is the beginning of the end, but I want to contextualize that just a little bit. With all the things that are going on between WallStreetBets and short-sellers, I think what you're having as a tug-of-war right now and I think what's happening is it's going to continue until enough retail investors get burned. It's going to happen, because a lot of them are buying these stocks at ridiculous prices right now.
When these people all get together and start to scream bloody murder, because they've lost half of the money that they put in this or 90% of it. I think you're going to see a lot more interest and we're already starting to see some state regulators, from federal regulators who are watching it, from politicians who are tweeting about it. I think that there's going to be some intercession happen in this, either politically or from a regulatory standpoint, and I think it's going to happen probably before terribly long.
You've already seen the Robinhood app suspend trading and it wasn't just Robinhood. People are screaming Robinhood. Interactive Brokers did it as well. I think this is probably the beginning of the end. It may not be the end of the story. It's the end of the battle. It may not be the end of the war.
Hall: Well, I think GameStop share is something like, I don't know, 800 million shares were on track to trade hands today. I didn't look at the final numbers to see. But this is a company with less than 70 million shares of stock and when you turn over the entire shares outstanding 10 or 15 times in a day, I don't even have words to describe that. Dan, what are your thoughts here?
Dan Caplinger: I'm looking forward to finding out who the real players were on both sides because this is being pitched as a populace, little guy versus big thing, and that's just nonsense.
There are some big institutions that were playing the long end, and just like there are big institutions, playing the short end. I think those big institutions on the long side, using this populous WallStreetBets stuff as shelter for what they would've been doing anyway.
This stuff happens all the time. Some big companies or some big institutions long a stock, somebody else is short. Watch CNBC and you can go back and look it at fights between big name investors on stuff like this.
Whatever happens in the background, we may never know all the details. We've gotten some of them just from looking at hedge funds that have bailed and big investors that sold their entire positions.
There's very much more of an inside baseball story here than what you're getting in the mainstream non-financial media about regular mainstream people versus Wall Street. I promise you that the half share of GameStop stock that people are buying or selling, it's not having a big influence. It is just not.
Hall: There's large money that's moving the needle here.
Caplinger: There are big blocks of stock that are moving their stock $20, $30, $40 per share in 10 seconds and your half share is just not doing it. So when I see on Twitter, the other night, hold the line, don't sell. It's like nobody cares.
Hall: It's easy to get caught up in this one and to keep going and keep going, and keep going and a couple of things. This was never zero. GameStop. None other than our own Jim Gillies, I think we can all tip the heart of somebody that understands cash flows and value and he is really good at finding deep value and making money in it and being in the market with it. A year ago, six months ago, was saying, this is GameStop's a great value. There is value here.
There are some Fools that have invested along with that have done incredibly well because of this completely unforeseen event. Turning tens of thousands into hundreds of thousands of dollars. It's happened. Fellow members have done this. But everything has a value. This is the last thing I will say and then we'll move on to our earnings takes.
To paraphrase, Kai Ryssdal, is a NPR Marketplace host. He tweeted earlier today. As good as the shade in Ford Fields, whether you're coming down the side of the little guys that are smashing the hedge funds or wherever you're coming from. Somebody used their rent money today to buy GameStop stock for more than $400. It happened. It happened. Somebody just lost half the rent money because they got sucked into this.