GameStop: Because They Can

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Question: Why is a $5 valued stock like GameStop (GME) trading over $200/300/400 per share?
Answer: Because it can.

Sounds like double talk? Not really. Here’s why.

Publicly-traded issues have one primary characteristic that virtually all other investments do not: liquidity. The liquidity in this case means ease of entry and exit. Easy in, easy out. Buy, sell.

Now, add to this the ability to coordinate with others to, in effect, corner a market plus the perceived vulnerabilities of certain other players in this casino-like game (i.e. hedge funds with short positions) that can be exploited and you have the distorted reality that is today’s stock market.

With all due respect to all those ukulele playing, diet Coke drinking grandpa sages from Nebraska, none of what I have just stated has anything to do with what stocks are supposed to be represent: the present value of their future cash flows. For reality-based factors such as valuation function as little more than a point of reference. Always has. Just not to this extreme.

Therefore, as the financial media search for the cause to every effect, the essential point to remember is simply this: stocks go up and down for one reason…because they can.

Disclosure: Accounts managed by Blue Marble Research may presently hold a long/short position in the above mentioned issues and their inverse comparables.

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