GameStop was a good candidate for a short—that is, a bet that its stock price would decline (a process I’ll describe shortly). And, indeed, if you had shorted GameStop a while back, you could have made a lot of money. The share price skidded from the mid $30s in November 2015 to $3.85 last summer. Then, the price of GameStop started climbing, for no particularly good reason, and shares closed 2020 at about $19, which some short sellers believed was unsustainably high for a brick-and-mortar company that was wallowing in red ink.
This is where the story takes an unusual turn, familiar by now to anyone who follows the stock market. In the course of two weeks, shares of GameStop skyrocketed to $348. The short sellers, mainly hedge funds, were crushed, trading platforms such as Robinhood limited purchases, and politicians and regulators caused an uproar. All I want to say about GameStop is that all stock prices go up and down, but in the long run they reflect the actual underlying value of the company. So, no growth, no earnings, no three-hundred-dollar stock price.
My subject for this column, however, is not the GameStop controversy, which has been portrayed by some as a moral contest between scrappy little investors versus evil Wall Street speculators. My subject is short selling, which was the predicate for the controversy in the first place.
What Gershwin knew. When I was a child, listening to my parents’ records, I was fascinated by a line from the song “I Can’t Get Started,” with lyrics by Ira Gershwin. It went, “In 1929, I sold short.” I thought it meant that the song’s protagonist sold all his stock before the Crash. Later, having learned about short selling, I realized that he did much better than that. When you sell short, you don’t sell before something happens. You sell something you don’t actually have. You are short, in this case, of shares of stock, so you borrow them from someone who owns them.
Continue reading your story on the app
Continue reading your story in the magazine
Find ATTRACTIVE YIELDS in Today's Market
Our field guide to income investments identifies opportunities that range from ordinary to downright exotic.
Profit From Healthy Profit Margins
These companies find ways to flourish even in tough times
Fight Back Against High Inflation
Whether you’re 28 or 68, you’re staring down a surge in con-sumer prices. But for many millennials, the precipitous rise in inflation—which reached an overall rate of 8.5% in March—has been especially steep.
Create a Financial Plan for a NATURAL DISASTER
You’ll recover more quickly if your important documents are secure.
Caregivers Share Their Stories
My column on caregiving (see “Living in Retirement,” Feb.) generated a number of responses from readers who offered their own perspectives. “People not in this situation don’t have a clue, and that includes ‘experts,’ ” writes Ken Jarosch, sole caregiver for his wife, Kathy, who suffers from muscular dystrophy. “I went to several caregiving classes, where we were served a nice dinner and a sunshine talk. But the real help came from the people in attendance, who actually live this.”
Buy Bonds Now? That Depends
I insist it is folly to quit sound invest-ments because of a bad quarter, but the bond market swoon of early 2022 tests my resolve. When superb stuff such as tax-exempt toll-road bonds, taxable infrastructure municipals and BBB corporates suffer losses of 6% to 10%, that is true shock and awe. The last time returns took a big wallop was the summer “taper tantrum” of 2013, when, despite the absence of inflation, traders overreacted to Federal Reserve plans to cut back bond purchases. That episode is remembered now as an epic buying opportunity— thus, it is tempting to interpret the current downturn in the same vein.
ABLE Accounts Offer Financial Independence
People with disabilities, and their families, can save for a variety of expenses in these tax-advantaged accounts.
Answers to Your SOCIAL SECURITY QUESTIONS
Figuring out how to get the most out of your benefits is not as simple as it looks.
THE MONEY TALK NEW COUPLES NEED
Whether or not you merge your finances, you need to be on the same page. Natalie and Dan Slagle are founders of Fyooz Financial Planning, a financial planning firm that specializes in advising couples.
An Urgent Need for Cybersecurity
In June 2017, Russian hackers launched a malware attack on Ukraine called NotPetya. The attack, which locked users out of their own files unless they paid a ransom in bitcoin, was just one more tactic in the conflict between the two nations that had begun three years earlier. But viruses don’t respect borders, and this one spread far beyond Ukraine.
FEAR GREED - Fascination
A wild, emotional year drew investors to meme stocks and Bored Ape NFTs—and changed markets
Just When You Think YOLO Is Finished …
The gains on faddish investments may not last, but the urge to speculate isn’t sated
Hot Shorts Summer
Traders who bet on bad news are the necessary foils of meme stocks
Who Really Gets Rich From Robinhood
The app makes millions funneling inexperienced investors to Wall Street traders. Did Alex Kearns pay with his life?
Finance – The Dogestock Generation
Get-rich-quick trading is partly about entertainment, but it’s having a very real impact on markets
BidenBucks Is Beeple Is Bitcoin
In a system rigged by the rich, outsiders have to make their own volatility.
SAFETY LAST: RISKY INVESTMENTS SOARED AT START OF 2021
Who needs safety when the world’s about to get back to normal?
STOCK TRADING APP COMPANY ROBINHOOD FILES PLAN TO GO PUBLIC
Stock trading app company Robinhood said this week that it has submitted a confidential plan to go public later this year.
How the SPAC Era Will End
A fever has swept Wall Street, and it’s stretching all the limits
INVESTING ABCS: TEACHING YOUR KIDS ABOUT MONEY AND MARKETS
The recent stock market mania over the video game company GameStop, which this week was scrutinized by Congress, has provided a teachable moment for kids.