GameStop is a company that had been trading at a low price on the stock market, but things have been going great for this company over the last few weeks. Recently, CNBC’s Jim Crammer did a quick show about why GameStop investors should take the money and run when it comes to this ‘short squeeze’ with GameStop. Jim Crammer is the host of “Mad Money,” and he gives his expert advice when it comes to trading, stocks, bonds, ETFs and REITS. Cramer gives a brief recap of the events that led to the GameStop phenomenon.
A Short Sell Review
Hedge fund traders are the savvy and wealthy Wall Street traders who know how to work the market. Short selling is a technique that is often used by hedge fund managers. Short selling occurs when an investor borrows shares of a company and then sells them quickly after with the hope that the price will fall in the near future. After the price falls, the purchaser will then buy the stock at this low price, pay back the borrowed shares and profit from the difference.
How GameStop was a Game Changer
Since heavy investors had shorted GameStop’s shares, everyday investors decided that they were going to do something revolutionary. They took to social media and used influence and numbers to drive up the price of GameStop’s shares. There is a social media group who call themselves WallStreetBets. They took to their forums and encouraged millions of readers to purchase stock in GameStop in order to raise the company’s shares. In the following weeks, GameStop’s shares flew up 400%, and it closed out January with a 1,625 gain. This strategy was used to put the underdogs on top. When all groups are purchasing the same stock, they skyrocket upwards. The social media investors did their due diligence, and GameStop had an enormous gain on paper. Savvy investors were able to ride the wave.
Why Cramer Thinks Investors Should Back Out
The “Mad Money” host believes that the buyers of this stock should sell their stocks while the getting is good. These investors have been told that they should hold their stocks, but Cramer does not agree with that strategy. He believes that the only way that these social media investors can benefit from their purchase is if they profit from the winnings and declare victory. Some of these investors might be hesitant to sell their shares because they do not want the stock to come crashing down, but the truth is that selling the stock will not cause that to happen. Cramer is not worried about the big hedge fund managers and other “Big Ballers.” He is out to protect the little guy. Even though GameStop has seen a decline in its sales over the years, Cramer knows that the company can be turned around by savvy investors. Even though these social media investors have seen a huge profit in sales due to this unusual event, Cramer encourages them to recognizes the fact that ‘gains have no value until they are sold.’ Since that is the case, Cramer recommends not holding on to the GameStop shares for too long.
