“Amateurs Built the Ark; Professionals Built the Titanic”: GameStop and Hedge Funds

The source is unknown, but to whomever had the idea: All Hail!

The quote is apropos at this time as we have witnessed day-traders catch the hedge-funders in their own game. “Buy low, sell high” and whoever said that did not understand hedge funds. The stock markets have long been dominated by “Bet against stocks when they are high and cash in when they go low.” The problem with the strategy is that one must be correct in the bet, a bet that is highly leveraged. If, per chance, the stock goes high, then the hedge funders must make good on their bets to purchase.

GameStop, like most strip mall and mall retailers, was struggling. The hedge-funders bet that GameStop would fail. What the wizards of Wall Street failed to research was that there is one entire generation of day-traders who grew up in GameStop. This was no ordinary retailer. The Barometer spent more time in GameStop waiting to purchase the newest game; waiting for an appraisal so that her sons could trade in old games for new games, and just waiting in line. And GameStop was one sly retailer — whatever it paid for old games and equipment was paid only in store credits — no cash changed hands. Sort of like Wall Street until you get burned. To this day, the Barometer has $196.71 in GameStop credits that her sons never used.

We parents and our children bonded in GameStop. It was a way of life. We prayed together that there would be no more new video games. We were willing to become Amish so that there would be no electricity in our homes in order to stop the addictive hold that GameStop had on our youth. Apparently, however, our children had formed a lifelong bond. So, those children who grew up to be day-traders rallied together to “Save GameStop.” These former addicted youths were now adults with children. Who can parent without a local GameStop? So, social media addicts that they are, they got the word out. The day-traders bought put options as the hedge funders were buying call options. GameStop stock went from $2.43 a share on February 5, 2020 tp $491.98 per share on January 25, 2021.

The GameStop fans put it to the hedge funds. Literally and figuratively. They want the hedge-funders who were positioned short on GameStop to buy their shares. Oh, the weeping, wailing, and gnashing of teeth coming from the billionaires of hedge funds who have never imagined so much as a widget, let alone built one. They want the SEC to step in. The trading platforms are banishing GameStoppers from their sites. Trading on those platforms has been halted.

Truth be told, the amateurs got the better of the professionals at their own game. A revolution launched by former gamers who hung around GameStop with their parents. The novices beat the professionals at the game the professionals created that was one risky way to earn a living. They did very well, until they struck a company with a heart created by its fans.

From an ethical perspective, if you want to play a risky game, you play by the pre-established rules. And the rules are you must come up with the cash for those who stepped in under the same rules. Was it an organized effort to manipulate the stock? Only in the sense of its psychological bond. The same thing happened with K-tel stock when it was teetering. It went from $-0.39 to $1.39 during a similar bubble. However, the stakes were much lower. Folks did not want to lose those ads for the TV marketer who provided as much entertainment in hocking its products as whatever was provided by the shows themselves.

As the New York Times headline blared “The ‘Dumb Money’ Outfoxing Wall Street Titans.” Ante up, gang, you got beat at the game you started and for which you wrote the rules. Making money for doing nothing is a proposition that always has a downside. And you cannot even get a controller to step in and save you. But you might be able to purchase a used one at Game-Stop. Be sure to take a parent long; you seem to need adult supervision on your trades.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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