skip to content
  1. Home
  2. >
  3. Investment Q&A
You can view 3 more answers this month. Sign up for a free trial for unlimited access.

Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: When the Gamestop frenzy was active Wednesday the market dropped 600 points. When it was restricted Thursday the market recovered. Now the market is plunging again. Is this mere coincidence or are funds which have to cover their shorts being forced to dump shares in other stocks on the market in order to get the cash to buy gamestop? In other words, how much of the fall the last few days is due to the actions of the reddit gang?

Read Answer Asked by John on February 01, 2021

Q: Hi Peter,

How do you see the hedge funds unwinding their position? All the data says that there is still over 100% short interest.. if "the people" don't sell and keep buying it will drive the price/daily margin calls higher and higher until they are bankrupt (and they are already probably close due to the $2.75B injection Melvin had to get, which was before the price was as high as it is now and is probably all gone).

But if they start unwinding the massive short position it will just squeeze them harder. Am I missing something? What do you think their plan is here? Are they all calling each other saying "don't unwind we need to hold off?" Seems like a big game of chicken and the masses are not backing down - people were already pissed off before hand, but I think people got extremely enraged on that day the retail guy for restricted and could only sell but the hedge funds could trade freely.

I think they were already on the brink and it would have been game over if robinhood didn't restrict trading that day last week. But even now they only allow 1 share to be bought. If it wasn't for the restrictions "the squeeze would have be squoze" they say! What do you see as likely scenarios for this ending?

Read Answer Asked by Max on February 01, 2021

Q: How long of notice do these short squeezed companies have to give to issue new shares and shore up the balance sheet? If AMC was to issue new shares at the elevated price it would be a win for them. I see executives are cashing shares in - why not? I would.

Read Answer Asked by Terry on February 01, 2021

Q: I just read one person claiming that he turned 50k into 11 million trading this stock. (probably fake news).But if it goes the other way, how does this retail gambler pay back an 11 million dollar loss when he's only got 50k in the bank?And how does the winner get their money from robinhood or whomever? the amount of margin required ,would astronomical for this retail trader.Hedge funds at least,can sell other stocks which drives other asset values lower.It seems someone is going to get a beating.

Read Answer Asked by adam on January 29, 2021

Q: Gents,
Your thoughts on the GameStop situation.
With the success of the Robinhood + Reddit influencers, how does one put pure speculative momentum trading back in the bottle? It feels like an OTC chat board on steroids' that self perpetuates. Other examples like AMC, BB and FR (today).
Some CEO's may even embrace this activity.
A sidebar question, what would happen if a Company had an approved ATM financing in place and fed into the mob?
Just thinking out load...
Thanks.
G

Read Answer Asked by Geoffrey on January 29, 2021

Q: Apologies for the dumb question, but the craziness over these short squeezes has introduced me to new ideas I don't fully understand.
1. I didn't realize I could instruct my broker not to permit my shares to be borrowed by short-sellers. But how can I lend out a share to a short-seller if I'm holding the stock the entire time? I don't plan to sell my 100 shares of LSPD anytime soon, so how can I lend it to a short-seller?
2. Can't all shareholders instruct their brokers not to permit borrowing of their shares? If so, would'nt that restrict the ability of short-sellers to short a stock? It seems like reducing the ability of short-sellers to short a stock I own would be good for the stock price.

Thanks
Michael

Read Answer Asked by Michael on January 29, 2021

Q: In your opinion how will these short squeeze situations affect the markets going forward? Will we never see such a large percentage of the float being shorted again? Surely any company that experiences a 100% float will be the next target of a reddit campaign.

It could also be looked at from the other side. Any company with a high percentage of shares sold short could experience buyers trying to preemptively predict reddit forums from doing it first. Has this situation permanently changed short selling?

Read Answer Asked by Brett on January 28, 2021

Q: This one is for Peter, since I understand hedge funds were once your bailiwick?

I know little-to-nothing about hedge funds and how they operate, so watching these huge swings happening on the markets lately and people covering shorts (whatever that means) ... I'm very curiously concerned about the overall impact this will have on the markets? Does the common sense investor bail out of Nasdaq stocks, for instance, for the moment, until everything settles down? There is no rhyme or reason to what is happening with many stocks and it would be horrible to be caught in the crossfire just for being at the wrong place at the wrong time.

I would appreciate Peter's perspective re: how to handle the US part of the portfolio at the moment.

Thanks, as always, for your great advice!

Read Answer Asked by Sylvia on January 27, 2021

Q: In researching the recent Gamestop madness, I have read that many of the shorts will expire on Friday. Given that the shorting hedge funds have been doubling down on their positions:
https://www.wsj.com/articles/citadel-point72-to-invest-2-75-billion-into-melvin-capital-management-11611604340
is there any possibility that there is a cascading effect of hedge funds potentially getting liquidated? I know that speculating in this matter is akin to mental gymnastics, but I think that the GME holders are here to prove a point about the shady dealings on Wall Street. Is it possible that a showdown between greedy hedge funds and Robinhood/Reddit millenials leads to a wider market shock?

Read Answer Asked by Jasper on January 27, 2021