Short sellers are investors that bet or speculate that a stock will lose value. Short selling has its advantages like hedging against a stock, but the short sellers mission is wanting to see the company’s stock price fall and make a profit. It’s a backwards game that can be hard to predict. Another risky bet from short selling is a short squeeze! Short squeeze is when borrows shares and immediately sells them, hoping to buy them back later. The squeeze happens when there are very little shares to buy back at the same price so the short seller has to buy the stocks back at a higher price and take a loss. Buying the shares back at a higher prices raises the value of the stock and thus starting the drive to an astronomical price!
A short squeeze is how the Gamestop stock shot up from 5 dollars a share to roughly 400! Investors from the Reddit community created a FOMO around the stock and retail investors bought up the stock and created a viral trend. As the stock started to rise and the hedge funds started to lose, the momentum of the stock shot up into the atmosphere! Gamestop is not the first massive short squeeze to happen, but not too long ago this same thing happened to Volkswagen during the Great Recession.
Hedge funds like Melvin Capital have become the villians in the Gamestop short squeeze because of their shear monetary power and their overall agenda to make a company lose value. Hedge funds can have a good side too; believe it or not. The funds will do massive research into a company to see if the organization is giving false data to investors and the S.E.C. A good recent example is Hindenburg Research noticed that Lordstown Motors Corp told investors they had more that 100,000 preorders for their new truck, but it turns out that statement was not entirely accurate. What is your opinion on hedge funds? Are they the greed we all depict when we think of Wall Street?