I'm not anywhere close to knowledgeable enough about investing to give lessons to hedge fund managers. I'm sure they have tricks up their sleeves that are beyond me. But if GME is a profitable company that's viable in the long term, then how does that work?
What, the shorting strategy? Likely it doesn't, which is almost certainly why Melvin published that moronic clarion call to short GME, which apparently is not doing so well. Melvin wanted the world to follow suit to they could make a free buck on human stupidity and greed. Well, WSB took exception - and rightly so IMO - and yanked the rug out in a really big way. Almost shockingly so, I would add. I know nothing of WSB, but they must have some serious horsepower behind them in order to be able to jack a stock price from $40 to $320, however briefly.
If some investors drive their share prices down by short selling them, then others will just be able to buy them at bargain prices.
You assume too much here, i.e., perfect knowledge. If I
KNOW what is going on and I beat the shorters to the punch, then what you say is true and the shorters take it in the neck in a big way, which is yet another reason to hold your tongue about such a move. This is sneaky shit, mind you, and because you're playing with one hand under the table, you have to keep everything on the downlow. There could be any number of reasons one would not want to advertise this. How about the target company doesn't want their prices driven down, so they begin to buy back treasury stock. They might even borrow $$ to do it. And there we see the other side of the coin - target repatriates a shit ton of stock to treasury, the price jacks way up, and they slowly resell so as not to cause a precipitous drop, make they payments for the loans, and pocket the difference. This would be the mirror-complement to shorting.
In any case, without knowing what was going on in the hedge fund manager's mind, it's hard for me to believe that they just wanted to bankrupt GME out of malice.
As I previously pointed out, I am working on limited knowledge of a single article that asserted the deliberate bankrupting of GME as one of the goals. That said, you r point is wholly valid. We don't know for certain what was in the minds of the manager. We DO know, however, that they'd employed one stupid mofo who single-handedly damaged or even destroyed the company and, I must assume, the portfolios of a large number of people. This is the brand of stupid that gets people shrieking for more government. Someone at Melvin should probably go to prison for an extended stay.
Unless maybe they had some personal feelings about GME and its owners that had nothing to do with the profitability of the company and they let those personal prejudices drive their decision. And if that was the case, I would be in no position to take sides on a personal feud anyway. But I assume those kinds of investing decisions are usually made by hedge fund managers without such personal motives, and based instead on a dispassionate analysis of each stock. Most likely certain features of GME convinced this hedge fund manager that it was a stock to sell at its current price. Whether his analysis was smart or stupid is really beside the point ethically. That's the way the stock market works. Every stock is the price that it is right now because there are people equally on both sides putting their money where their mouth is, some who think it's a good price to sell it at and others who think its a good price to buy it at.
The reasons are irrelevant to the outcome, which appears to be the wholesale destruction of Melvin. The only relevant issue is their blabbering, which included a solicitation to the market to join the fray. It blew up in their faces in a big way and IMO they deserve the fate that is hopefully coming to them. Let the lesson be learned. Bail them out and you will have effectively rewarded them for their stupidity and horrifically bad judgment, not to mention their moral turpitude, not to mention their having proven themselves unworthy of so much as a shred of human trust.
That all said, shorting is a strategy that requires one of three things: either super human analytical prowess, stupidly good luck, or inside information. You are predicting the future, and in any case that is always risky business. Shorting is always a gamble - inside information has proven wrong in more cases than we can count, so even that is no guarantee you won't lose your ass. Hell, the target could be putting out false signals to encourage a drop in price pursuant to an objective of mass repatriation. You just never know for sure. So IMO shorting is stupid shit on its face. It's a shortcut, the honesty and ethics of which are questionable on its best days, and it is the path of people whose morals I would assess as loose in the similarly best case. That's just my opinion. Righteous investors - REAL investors I will daresay - don't waste their time with this sort of penny ante bullshit move precisely because it is risky, morally ambiguous at best, and not a good way to advertise one's character to the world <-- that last being yet another reason not to telegraph one's intentions in such matters. Then there is the good old notion of "fiduciary responsibility", which gets precious little nod these days.
I once lived in Denver and worked for Rhythms Net Connections as a subcontractor to Pricewaterhouse Coopers. One day I was in a morning meeting and the PWC lead manager went on about how they knew the client was doomed and how we were going to take their last $30 million because we could. I was disgusted by his attitude, which is perhaps why I am no longer wealthy. They took the money and about five or seven months later Rhythms when tits-up. My point here is that just because you
CAN do something, it does not follow that you
OUGHT to. There was nothing illegal in what PWC did, but had they properly discharged what I saw as their fiduciary responsibility to the client, they would have advised them to not develop the computer system and to hold on to the cash because the business was too far ahead of its time and that they would need the cash to weather the lean time to come. But no - they slaughtered the cow and laughed all the way to the bank. Disgusting. That was in 2000.
A contrariwise example: in '96 I was called into XYZ Securities. "We need a SYSTEM!" was the panicked cry from the board. OK, let me take care of this. I asked for two weeks, only needed eight days, but waited for dramatic effect. I interviewed nearly the entire company, gathered the data, did the analysis, and came back to the CEO with the recommendation NOT to proceed. When asked why, I told him that at this time the cost will be around $35 million (it was a popular figure for such endeavors in those days) at a time where the technologies were in their infancy (CRM, ERT, etc.) and that regardless of the platform chosen, the vendor might be out of business in six months, suggesting they wait a few years until the weak were weeded out and the tech converged. By the time I was done the CEO looked like he was about to let me come to his house and fuck his teenage daughter. I could have easily walked away with half a million dollars and conceivably a full million, had I played it - and it was tempting. That was real money in those days. I was not going to do that to those folks - people's lives were literally on the line and I was not going to be responsible for over 100 people being no longer able to feed their kids.
I sent the CEO an invoice for $14K. I received a check for $35K. When I called to let them know of the error, CEO told me that I probably just saved them from dissolution and that the check was his way of thanking me for being honest, recognizing the nature and extent of the ride on which I could have taken them. I did the right thing because it was the right thing to do, and while the bigger money would have been nice, I have no regret there whatsoever.
Capitalism is a system where winning companies come and go as a result of preferences that people communicate to the market by spending their own money based on their personal values.
Not quite. Firstly, "capitalism" isn't a "system". It is simply a tool. What you probably mean is "the free market". China is a capitalist nation, as was soviet Russia, their flailing denials notwithstanding. They are not, however, free markets, though China is far closer to it than the Soviet Onion ever was, which is why China is preeminent and the Onion was long ago diced and sautéed into oblivion.
The world this takes place in is ever changing, and many of yesterday's winning companies will lose tomorrow. When those winners become losers there's no virtue in trying to prop them up out of charity, and no malice in trying to shift one's investments away from them and into the winners of today (whether done with success or failure). There's pain for those who own and work for and like to do business with the companies that fail. But on the whole, this ability of capitalism to adjust by casting them off is more good than bad.
The ability of FREEDOM. Capitalism is a hammer... a screwdriver. Freedom is the purifier and the keeper of virtue.
