Mark Cuban to Wallstreetbets: Hold GME if You Can
In the midst of the unprecedented GME short squeeze, Mark Cuban joined the Reddit group that spearheaded the entire movement. In one of his AMA sessions on WallStreetBets, he said that “ WSB changed the game far more than everyone on this board will ever get credit for.”
The Gamestop-Reddit Backstory: The Sequence of Events
Hit hard by the COVID-19 outbreak, the stocks of Gamestop, a struggling video-games retailer, went as low as $2.57 before it could strugglingly crawl back up to a double-digit price of $18.84 by 31st December 2020. However, billion-dollar hedge funds like Melvin Capital and many others showed no signs of stopping when it came to milking profit out of a company’s distress. They continued betting against the stock despite it attempting a desperate comeback. It is at this crucial juncture that the users of the WSB Reddit community took it upon themselves and started piling into GameStop shares, pushing the stock price up to create pressure on the short-sellers.
Cuban was evidently inspired by this move of WSB. While answering one of the AMA questions, Cuban encouraged to continue taking up such initiatives, with more vigor than the last time. His definitive message to the WSB community was, “you will do all this again. You will go after WS and the next time you will be smarter.”
While some of the Reddit-investors were interested in making money, some of them saw it as a retributive act meant to penalize the big capital keen to make profits out of a company’s distress. However, this momentum could not sustain. Although the Reddit investors were able to drive up the price of Gamestop to more than $480, it has now come back to nearly $60 again, wiping out billions of dollars in market value.
In such a scenario, Mark Cuban joined an AMA session on Reddit and asked the Reddit investors to hold on to their Gamestop stocks if they could. Let us delve a bit deeper to understand what Cuban meant when he said, “If you can afford to hold the stock, you hold. I don’t own it, but that’s what I would do.”
Cuban’s Guidance to the WSB
The entry of Mark Cuban into the WSB and his active participation in the discussion is reflective of the fact that WallStreetBets is not only a group of agenda-driven amateur traders. With a real-time net worth of more than four billion dollars, and being an impact investor himself, Mark Cuban knows what he is talking about. His coming to a WSB discussion indicates that WSB’s Gamestop act was more than a stray incidence. Rather, on the contrary, it did set in motion a well-concerted movement that could radically change the financial landscape.
Not only Cuban joined the discussion but, in no ambiguous terms, fixed responsibility for Gamestop’s steep fall. He held Robinhood responsible for crippling the source of demand that resulted in Gamestop plummeting at a rapid rate. Explaining Robinhood’s actions, Cuban in no uncertain terms said:
“Supply and Demand, but in this case, it literally could be because the source of demand has been crippled. When RH shut it down, then cut it back, let’s put aside why they cut off the greatest source of demand. They created a RobinHood Dive. No RH buyers, means sellers lower their price to find buyers. And they keep on lowering it till they find buyers. Keep the most natural buyers out of the market and the price keeps on FALLING.”
For readers who need a bit of context into the role that Robinhood plays in the Gamestop saga, Robinhood is a free-trading app, which brands itself as a tool to help amateur traders. However, when the stocks of Gamestop jumped by more than 14,300%, Robinhood, allegedly, abandoned their customers to offer hedge funds and other elite investors an unfair advantage.
In a way, Cuban’s holding Robinhood responsible and asking the WSB investors to hold if possible is a full-scale indictment of the Hedge funds in favor of the retail investors.
SEC’s Culpability is Evident
In one of his replies, Cuban anticipated filing of class action lawsuits which became a reality when, on Thursday, numerous angered users came out and filed class-action lawsuits against Robinhood. However, Cuban’s assessment of the SEC continues to remain grim. He believes, ‘SEC is an agency built by and for lawyers to be lawyers and win cases rather than do the right thing’.’
Cuban doesn’t see the SEC as the paragon of justice in the world of stock trading. While referring to SEC, Cuban said:
“If the SEC cared about anyone other than Wall Street, you would be able to go there right now and read bright-line guidelines about insider trading, shorting, what is a pump and dump, what are the rules for cutting off the purchase of stocks like happened with GME et al.”
Cuban believes that if the SEC was really interested in upholding their regulations relating to insider trading, shorting, or the practice of pump and dump, they could have easily seen that RH is more interested in making money by selling order flows. Their zero commission fee structure makes them consider retail traders dispensable. They don’t have the strength to stand strong against big-capital interests. Yet, Cuban feels that WSB will win. He said pessimistically:
“There will be class-action lawsuits. And you will win. And after legal fees, you will get your $4 settlement check.”
The Road Ahead
What does it all boil down to at the end of the day? Cuban sees light at the end of the tunnel. Firstly, he advises people to hold on to their Gamestop stock if they can. That will hit the hedge funds where it hurts the most.
As a strategic learning Cuban advises the WSB to continue picking their spots and picking them right. He believes that if groups like these come together they can hit the manipulative hedge funds as and when required. However, to ensure that there is a sure-shot win next time Cuban asks to leverage a broker with ‘trillions of dollars’ on the balance sheet. Someone who wouldn’t ‘blink an eye’ once the fight begins.
What do you think of Mark Cuban’s AMA with Wallstreetbets? How will the saga with $GME continue to unfold? Let us know in the comments below.
Disclosure: Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.