Reddit Market Winners Face Hard Choice: Sell or ‘Hold the Line’?
NEW YORK (Capital Markets in Africa) — On Wednesday they watched their fortunes surge. They made gains collectively worth billions and bludgeoned two hedge funds. Then their holdings plummeted, only to rebound again to stratospheric heights unimaginable just a few weeks earlier.
Now that members of the Reddit forum WallStreetBets have become a cultural juggernaut on Main Street and a force to be reckoned with on Wall Street, many of the investors who make up their ranks are grappling with a hard question: When should we sell?
They’re people who work salary jobs in fields like contracting, advertising and engineering, for whom this kind of windfall could make a substantial difference in their lives. But some Redditors view cashing out now as a betrayal of their campaign against the Wall Street establishment, and are imploring their fellow traders to “hold the line” rather than sell.
Noah Williams, a 36-year-old from Atlanta, became something of a WallStreetBets celebrity when he posted about paying off his student debt earnings from GameStop Corp. trading.
And he still owns 1,100 shares. Rather than cash out now, he’s holding. He believes there’s a bright future for GameStop, a brick-and-mortar video-game retailer, following the lead of Ryan Cohen, a billionaire entrepreneur who joined the company’s board this month.
This, despite the fact that the company isn’t projected to turn an annual profit until 2023, and the average analyst price target implies that shares will lose more than 95% of their value in the coming year, as of Friday afternoon. Even the most bullish analyst tracked by Bloomberg has a 12-month price target on the stock at $33, compared with its closing price Friday of $325.
But there’s another reason Williams and others are reluctant to sell: They are now emotionally connected to the stock and its future, viewing ownership as being part of a battle with institutional investors and hedge funds that were banking on the company’s failure. If the stock price remains high, hedge funds that are shorting the company will lose.
“Hedge funds and the market movers are betting on us pulling out,” Williams said.
They’ve gotten public support from politicians and celebrities, including the famously anti-short Elon Musk. On Friday, crypto mogul Justin Sun pledged to buy $10 million of GameShop shares to “unite & squeeze out those greedy hedge funds.”
$1 Mil doesn’t seem enough, I’ll be buying $10 Mil $GME instead tonight from Asia when market opens! It’s time to unite & squeeze out those greedy hedge funds! Wallstreetbets, 4 billion Asian community & 20 mil $TRX community supports u! Let’s do this! @WSBChairman@wsbmod pic.twitter.com/d494a77RNq
“If Wall Street keeps screwing retail we will make our own market,” Williams said.
That drive has pushed some to advocate for buying Bitcoin, presumably in a bid to further remove themselves from the reach of regulators or institutional firms. Of course, Bitcoin platforms have had their own outagesand people have gotten locked out of their wallets. Still, various digital coins rallied and investors promoted the idea.
“The activity in GameStop is more proof of concept that Bitcoin is going to work,” SkyBridge Capital’s Anthony Scaramucci said in an interview. “How are you going to beat that decentralized crowd?”
Matt Levine
What is the endgame for the GameStop Corp. trade? The trick is figuring out when GameStop is going to hit the top. People who got in at $20, or $400 for that matter, and got out at $500 will do great. But a lot of people will lose money.
The speculative frenzy, and the insistence on staying put, worries mainstream wealth managers — who want people to get out, now.
“In Vegas, the casinos want to keep you in the chair as long as possible, and there’s a reason for that,” said Ryan Sterling, founder of Future You Wealth, a financial advisory firm based in New York City. “I know that some will respond that a lot of research and diligence went into this short squeeze, but you could have easily been wrong. Therefore, take most of your winnings and reinvest in a diversified portfolio.”
Aaron Cope has found some middle ground.
The 29-year-old contractor bought $29,000 worth of call options on Nokia a few days ago at 25 cents per contract. Thanks to the surge, they ended up trading Wednesday at over $3 a piece, meaning his holdings were suddenly worth around $300,000.
Cope was driving down a Florida highway when he found out about the price moves. He felt so euphoric, he had to pull over to the side of the road and talk through his next steps with a friend on the phone.
“I’m 29 years old,” he said he told his friend, Doug Oosterhart, a financial planner. “I have this extra $29,000. If I lose it all, whatever. I can make it all back. Let’s just go all in on Nokia.”
Aaron Cope
Oosterhart said he understood the feeling. He and Cope had been monitoring WallStreetBets for around a year. Oosterhart doesn’t advise his friend professionally — he doesn’t day trade or advise on the forum’s stocks — but he had seen investors get burned.
“Sell half,” Oosterhart recalled saying. “You can’t be mad at that big of a gain.”
So Cope says he took out $150,000.
He’s going to sit on it for a while. But ultimately he wants to keep investing. “We’re going to keep squeezing,” Cope said.
Source: Bloomberg Business News