BONUS: What is Going on With Gamestop and the Stock Market? The entire Wall Street Bets VS. Melvin Capital (Gamestop, AMC, Nokia) explained!
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On this special episode of the personal finance podcast, we're gonna talk about what's going on with GameStop, AMC, and all these other stocks that are flying to the moon. What's up, everybody? Welcome to the personal finance podcast. I'm your host, Andrew, founder of dollar after dollar.com. And today on this bonus episode of the personal finance podcast, we're gonna talk about what the heck is going on with the stock market right now, because I have never gotten so many emails in my entire life on one single subject. And it's all over the news. And if you haven't seen it yet, I'm going to explain exactly what is going on. So this is one of the craziest funniest situations I've ever seen with the stock market. And it's one of the wildest stories that I've ever seen as well, I can see this becoming a Netflix documentary very, very, very soon. And if you're out of the loop to get your popcorn ready, because this is exactly what happened. So GameStop, if you're not familiar with GameStop, it's a video game store, it's a dying business, because what happens a lot of times right now is a lot of people download video games online. Plus, with COVID hitting right now a lot of malls are dead, and a lot of game stops are inside of malls. So it's a lose lose situation for GameStop. So what happened was a hedge fund started shorting the stock, Oh, actually, a lot of hedge funds started shorting this stock, betting that it would go down. So that's all shorting a stock is, if someone is betting that a stock is going to go down, instead of up now here on the personal finance podcast, we never recommend that you ever short any stock, because it's a very dangerous game to play because it can go down infinitely, and then you're stuck holding the bag. But there's one fund in particular, which is Melvin capital. And it's a multi billion dollar hedge fund that has been putting together a very, very big short on GameStop. And usually you don't have to disclose your shorts, that's not something you usually have to do. It doesn't have to be public information. But a group of redditors discovered the position, what they figured out was Melvin capital had $55 million, shorting GameStop. And what happened was this redditor group started buying shares of the short stock to make the stock go up. Now I'm putting this in as simple terms as possible, so everybody can understand this. So they started buying these shares, and making the stock go up when the hedge fund was betting that the stock would go down. Now, that's all this is a bet, because GameStop is not a profitable company. So they're basically trolling this hedge fund to make the stock go up. And now the borrowed shares that the hedge fund had, that they bet were going to go down, were due, but the redditors refused to sell. And they commanded higher and higher prices. Because as it grew in popularity, between the last couple of days, it started to explode in pricing. And that's the wild thing, because it has nothing to do with GameStop as a business, which is how you should invest is looking into the business reading the financials, those types of pieces. GameStop is just the middleman in this whole situation. They're stuck right in the middle. And it's a battle between basically a bunch of nerds and a bunch of doofus is on Wall Street. And if you read the subreddit, Wall Street bets, there's one guy who had a quote, who really just summed the whole thing up, and I can't remember the exact quote, but he said something along the lines of we can remain stupid for longer than they can, they can stay solvent because Melbourne capitals lost like $2 billion, the last couple of weeks. And so far, they've had to get bailed out by a bunch of other hedge funds as well. But the wild thing is a group of redditors just broke a massive hedge fund. That's exactly what they did. And trying to squeeze the short bets against hedge funds is extremely volatile. It's extremely stressful, especially if you're doing it in a serious way. I would never recommend anybody do anything like this. If you're interested in this story, if you think should I jump in? Should I jump into something like this? My quick answer is no. If you're gonna do something like this, if you're gonna jump in, you do it with money like you would use at a casino like betting money. This is not something to invest in for your future. Hey, it could go to the moon, it could go to $1,000 a share, which would be absolutely wild. But getting into something like that with significant money would be absolutely stupid. Warren Buffett famously said, be fearful when others are greedy, and greedy when others are fearful. What he meant by that was buy low, sell high right now you're looking at something that's going to go sky high, and then come crashing down. This can't last for a long period of time. And then an intelligent investor knows that if you're going to buy something, you need to look at the financials, it needs to be backed by the financials and he's be backed by the commodities that the company earns. But the stock market deals with individual people as well and individual people are extremely emotional in their investments. And that's what's happening here. It's a rise of people who want to get in and it's just going higher and higher and higher. And it's the same thing for AMC, which is now starting to soar. Nobody's going to the movie theater. It's the middle of a pandemic. So a lot of hedge funds are shorting AMC, and it's starting to soar. Nokia, the last time I used the Nokia phone, I was playing snake on it. All of these are examples of people rising up together in fighting against hedge funds. And it's one of the most wild, funny, crazy stories that I've ever seen in the stock market. So just remember, if you want to get on the action, just to have a little fun, I understand that but don't do it with money that you're going to invest for your long term future. Do it with fun money, do it with bet money and have fun while doing it. But that's just the simple explanation of what's going on right now. And I hope you guys enjoy the hilarity of the entire situation.