The recent GameStop fiasco created a massive surge of interest in the stock market for the amateur trader. Tales of everyday people investing a few hundred dollars and hitting it rich because of a once-in-a-lifetime short squeeze have all eyes on the stock market and its peculiar ins and outs.
Now, some prominent investors are warning that GameStop is just one symptom of a larger disease.
Some worry that the markets are broken. And they’re saying they have been for quite some time.
Prominent Investors Warn of Market Irregularities
Carson Block, a noted short-seller and prominent investor, told reporters on Wednesday that he believes something is fundamentally wrong with the markets currently.
“They were broken before GameStop, but GameStop and these meme stocks just show how broken they are now. Now, the reason they’re broken is because fundamentals matter less and less every day,” Block told Yahoo Finance.
Block specifically noted that the unusual twists in the retail investing landscape have made it so investors are focusing intently on the bizarre and technical side of the markets. Instead of focusing on fundamentals, Block warns, investors are trading with knowledge of corner cases and esoterica as their main concern.
“‘What’s the float? What are flows into the stock from passive going to be? What is the gamma embedded in the options that are outstanding?’ This is not asking the question the markets are designed to answer, which is, ‘Which companies are going to take capital and create value?’ And when we’re past that tipping point, it’s kind of fair to ask, ‘What’s the point of these markets?’” Block asks.
Agility is Key in the Modern Era
As a result of this, traders and firms need to be more agile than ever. Speed is key when dealing with the modern markets, because even fractions of a second can be huge swings in value for certain stocks.
That volatility is dangerous, not just for individual traders and firms, but for the market as a whole. Block tells reporters that his firm has hired a full-time trader to simply monitor their stock positions tick-by-tick to keep a close eye on the movements of individual stocks.
Block went on to note that professional traders are typically going to be savvier in the long run than amateurs and will likely even find ways to make money when short squeezes and “meme stocks” break out. After all, every fluctuation in the market is something that can be profited from if the trader is quick enough.
He acknowledged that much of the current frenzy is largely out of antipathy towards short sellers. After all, short sellers are often hedge funds that are actively rooting for retail outlets to fail, and will publish materials that point to this being the case. Many amateurs could easily blame these hedge funds for their favorite movie theater or game store going under.
“But if you’re going to try to target us just because we’re saying things that are not nice about a given company, well, then you know, we’re gonna protect ourselves and possibly even look to capitalize on that kind of insanity,” Block warns. So, can amateurs ever beat professionals, or was GameStop simply a weird ambush that won’t be repeated?
