That, my friends, encapsulates the plot lines of the soap opera called Wall Street.
If you aren't following what's happening with GameStop stocks, stop what you are doing and check. Yes GameStop, that store our kids dragged us to on every birthday, holiday, and special event day.
A few days ago Josh started to follow the GameStop ”short squeeze" to understand why its price was shooting up. Turns out an army of redditors caused chaos through a subreddit - r/WallStreetBets - where an insightful user shared this golden nugget (with edits, sans emojis):
Let's dumb this down for you apes:
Let's say 5 bananas currently cost $10.
One ape on the market has 5 bananas.
Snake asks to borrow 5 bananas for a bit and instead sells the 5 bananas thinking price will go down soon (shorting). He thinks he can buy them later for less and give them back to ape, so he makes profit on the difference.
Group of apes notice what stupid snakes are doing and decide to buy all bananas in the market until snakes have no other choice than to buy from the group of apes in order to return what they borrowed.
If the group of apes stay strong then price will go UP.
The key here is the last line - If the group of apes stays strong then price will go up. That is what is happening to GameStop ("GME") stock.
The snakes are scrambling. The apes are having a good laugh. Reddit is giving Wall Street a run for its money!
Last April GME was at $3.25. This morning at 9:33am it was at $300 after Elon Musk tweeted "Gamestonk!!" with a link to the subreddit.
About 71M GameStop shares are currently shorted. That is worth about $4.6B. Year-to-date (27 days!!), these short bets have cost investors about 6B. Trading sites crashed today due to volume of trades. Yikes.
Every investment concept should be explained in terms of bananas, apes and snakes! Bananas are the stocks or commodities or futures being traded. Apes own the stock and snakes are the intermediaries buying-selling-making money.
The short squeeze is rooted in shorting a stock which is exactly what the snakes did with the GME bananas - they bet that the price will fall in the hope of making money off the bet. But the Reddit apes have outmaneuvered the snakes.
GameStop's fundamentals are terrible. Yet, Reddit users have rallied a $1,000 investment in early January to a whopping $7,824 this morning.
Most of the time, I feel like the idiot outside the perimeter looking at all the bananas and IOUs moving around while the apes guffaw and the snakes slither about. I stand there munching on peanuts and nobody cares about me. Everyone is too busy managing the bananas.
Question is, what do we want to be: apes or snakes?
I wish I could be a banana - everyone tries to preserve bananas.
But since I can't be a banana, I will watch redditors time the market on GME's short squeeze in this latest episode of the Wall Street saga. Fingers crossed my 401K doesn't have a large position on GME.
