Pump and empty GameStop? | The Manila Times
“Pump and dump” is a scam where investors aim to increase the price of the stock they own by promoting and selling it once the price rises. They usually disseminate false or misleading information to create a buying frenzy that “inflates” the price. This system generally targets small cap stocks.
This was one of the topics covered at a recent Financial Executives Institute of the Philippines (Finex) forum titled “The GameStop Saga: Why and How Did It Happen?” Can this happen … HERE? We invited global market specialist Anton Jose Periquet from Bank of the Philippines to the event; The Securities and Trade Commissioner, Ephyro Amatong; attorney Roel Refran of the Philippine Stock Exchange (PSE); and Conrado Bate of COL Financial, the country’s largest online brokerage.
By now we’ve all heard of the Robinhood-GameStop saga that took Wall Street by storm and was criticized by elected leaders and those who generally ignore the stock market. The backdrop was set by Robinhood, a pioneering popular free trading app that promotes itself as a tool for buying stocks on a whim. As described in many social forums, the stock market saga began after a legion of retail traders banded together in the WallStreet Bets forum on Reddit and decided to invest in GameStop stocks in order to make a quick buck. and trolling huge hedge funds. Their motives may have been more altruistic than those of your usual pump-and-dump investors, but the results were the same. According to a chart presented during the Finex forum, shares of the struggling video game retailer have soared to more than 6,500%. GameStop stock hit a 52-week high at $ 483 and was down to $ 49.51 on February 16, according to the New York Stock Exchange. The price is still down and some analysts predict it should settle at $ 13. If that happened, the price would have dropped by over 90%, or something similar to the Dutch Tulip Craze from 1636.
The coalition of small individual investors ended up causing billions of dollars in losses for extremely well-funded financial firms who bet against GameStop by short-selling the stocks, only to get caught in short squeeze. Unfortunately for some retail investors who invested late in the game, they also lost millions when the bubble burst.
However, the GameStop action is not the only one to have been targeted by the WallStreet Bets forum. Several companies have also experienced something similar. Internet traders have targeted favorite shorts among members of the hedge fund community, rallying retail investors to their many causes. In June, shares of the now bankrupt car rental company Hertz rose more than 500% in one week as a group of investors made an offer despite clear fundamentals indicating permanent demise. of the society. This euphoria did not last.
This year’s saga initially focused on a few names. Besides GameStop, others were Blackberry, a former leading mobile phone maker that now focuses on software and security; AMC, the struggling cinema channel; and, more recently, Bed Bath and Beyond and Nokia. They are part of a larger group of companies with large, short institutional bases, but which for months have been favored by retail traders active on popular investor internet forums.These bets are completely at odds. with each other, but if these turn out to be the last Hertz saga of the year, many investors will be burnt.
So what was the conclusion of the Finex forum? Our panel of speakers was divided in their opinions. The conclusion ranged from highly improbable to a definite yes. Let me share some of their points and maybe you can decide for yourself.
COL Financial has shared some of its demographics. He shared the similarities between COL and Robinhood Trading. They were both online brokers and their clientele is primarily individual, stand-alone investors who trade in stocks and can avail of margin loans, albeit with more stringent requirements. COL is chargeable, unlike Robinhood. In the United States and in local markets, retail participation has increased during the coronavirus pandemic. This has attracted new and young investors to the market. These marketers were drawn to social media influencers on the prospects of making money fast. At COL, the proportion of accounts between 18 and 39 years old has increased to 65% and their assets to 36%.
During this period, the rise of local and retail investors was observed. According to the PSE, local investors made up 75% of turnover in market value in January and local investors made up the remainder. The participation rate of local investors is the highest recorded monthly since March 2010, when it was 76%. Meanwhile, retail ownership accounted for 52 percent of sales at market value, while institutional investors made up the remainder. This increase in the participation of private and local investors keeps our stock market afloat despite the exit of foreign investors who could have tanked the market.
During the forum, a blind object was thrown. We believe it was Abra Mining. According to Bloomberg, the company’s stock with no earnings and no analyst coverage is the most traded in the country. Bloomberg claims Abra Mining shares accounted for nearly 80% of the average daily trading volume in the Philippine market this year through February 3. The stock is up 103% this year while the PSE index has fallen 3.3%. Some market watchers attributed the surge to speculation that a new investor would come to develop his gold mine. But in response to six inquiries from PSE in January, Abra Mining said she was not aware of any information and could not speculate on the reason for the unusual price movements of her shares. Still, bettors couldn’t have enough stock. After plunging 27% in the last week of January, the stock returns for a gain. Its year-to-date gain peaked at 279% on January 19, when it closed at 1.1 centavo each, the highest since December 2007.
“A lot of those who made money bought Abra a long time ago and just kept it while waiting for a time like this when funds come back to speculation. The gains will come at the expense of those who are late in the game, ”said First Grade Finance Managing Director Astro del Castillo.
It sounds strangely familiar, but I’ll leave it to you to draw your conclusion. Can GameStop happen here?
Ronald Goseco is a director of the Financial Executives Institute in the Philippines.