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?? GameStop has experienced historical price changes in recent days
?? 2008 VW Short Squeeze memories awaken
?? Course level is probably not sustainable
The price capers that GameStop action hit in recent trading days will go down in the history books. A look back at financial history shows that this is not the first time that short stocks have become the pawn of investors. Probably the best known case is that of the German Volkswagen group. The story didn’t end well for the Wolfsburg stock: is GameStop, AMC & Co. threatened with a similar fate?
VW: the most expensive company in the world for a short time
In October 2008, German investors experienced an unprecedented spectacle: The DAX Volkswagen group’s stake reacted with a massive price jump to the news that Porsche is increasing its stake in the automaker to 42.6 percent and that you have options for another 31.5 percent. Volkswagen has insured shares. VW’s share value quadrupled in two business days, making the Wolfsburg-based company the largest company in the world.
The background to the price explosion was the fact that hedge funds had previously bet on falling prices at VW and had shorted the company’s common stock. Due to rising prices, short sellers were forced to liquidate their positions and buy VW shares. What alone had already provided an additional boost to VW shares was reinforced by the fact that there were not enough VW shares available on the open market, because the state of Lower Saxony also owned 20 percent of the shares. VW shares.
The consequences were dire: Hedge funds suffered massive losses, while small investors who were able to divest VW shares in due course made huge profits. But those who failed to get their VW shares to market in a timely manner had to watch in the days that followed as VW’s stock lost massive ground and gave up all gains again in no time.
Does GameStop face the same fate as VW?
In recent days, this phenomenon was repeated again when retail investors agreed on the Reddit sub-forum, WallStreetBets, to target very short stocks. In several concentrated stocks, they were massively hedged with shares of computer game retailer GameStop to force hedge funds that were holding short positions in the stocks to go short. The plan worked, and the buying spread to other stocks where short sellers had bet on falling prices.
The result is worth seeing: GameStop shares rose more than 2,000 percent on the New York Stock Exchange in just a few days and hit a new all-time high of $ 483.00 – and that’s without affecting operating direction or outlook. future of the Company would have changed nothing. . The stock became the toy of investors, because in the following days the price fluctuated enormously and even caused brokers like Trade Republic or Robinhood to massively restrict the trading of GameStop shares; Robinhood has now lifted this restriction again.
Similar to VW 13 years ago, the price increase at GameStop was not permanent – just days after the price explosion, a large chunk of the massive profit is already gone, even if the stock certificate still costs significantly more than at the beginning of the year. GameStop shares thus follow a classic pattern, as Lindsey Bell, chief investment strategist at Ally Invest, emphasizes: “a rapid rise and a rapid decline.” Stocks that trigger a small contraction “can move violently for no reason and the tide can turn quickly. And when the contraction ends, everyone tries to sell at the same time,” CNBC quoted the expert.
Ihor Dusaniwsky, Managing Director of S3 Partners explained why this is also reflected in the decline in trading volumes: “Both fundamental and momentum short sellers have found opportunities and exit points to reduce their positions in the face of these losses, since the short compression of GME forces “.
Sooner or later, GameStop shares will likely find themselves back in the price regions in which they have been traded in recent months, just as VW shares were unable to maintain their high price level at the time. “All short squeezes like this end the same way, and stocks often go back to where they started their flight,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, quoted CNBC as saying.
GameStop’s share price can only be justified in the long run if the company made a massive adjustment to its own business model, because the fundamental operating issues at GameStop haven’t changed even after the shares soared.
Editorial team of Finanzen.net
More news on Volkswagen (VW) St.
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