Gamestop rally throws stock insiders into a dilemma
No time right now?
The rapid rise of a dozen small stocks, above all Gamestop and AMC, brings their strategic investors into a stalemate and forces them to behave paradoxically.
Gamestop investors who cannot be counted among the traders who organized themselves via the Reddit forum Wallstreetbets and armed with apps like Robinhood or Trade Republic to spoil shortsellers the fun of betting on falling prices, are faced with a problem that at first glance seems incomprehensible.
Those who buy shares are primarily betting on rising prices and want to achieve returns either through a later sale at a higher price or through regular dividends in the event of positive business developments. If a share now rises massively in price, this is a trend that is entirely in the interests of the investor who already has shares.
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Gamestop’s paper billionaire: 76 million investment becomes 2.9 billion
That is what happened to the owners of low-priced papers like those of Gamestop or AMC in the past week. As Business Insider (BI) reports, one of the Gamestop shareholders became a multi-billionaire on paper, even though he had only invested 76 million US dollars in an approximately 13 percent stake in Gamestop last summer.
Just like other Gamestop insiders, Ryan Cohen, the paper billionaire of the stock rally, has not yet sold any of his shares, and apparently not before. According to BI, not a single one of the Gamestop Insiders sold shares after January 11, 2021.
Previously, insiders participated in trading at weighted prices between around $ 20 and under $ 40. Last Friday the paper closed at $ 325. Nevertheless, not even Gamestop boss George Sherman or major investor Donald Foss seized the opportunity according to BI information.
Reputation damage feared: Investors are having a hard time selling
On the one hand, this may be due to the fact that there could be a holding period before the publication of the next annual report on March 26, 2021. It seems more likely, however, that investors will be prevented from actively profiting from a price increase that is not based on any economic factors and that is therefore pure speculation.
For the communication professional Bob Pickard, the behavior is more than understandable. After all, it would look as if the insiders wanted to benefit from the ignorance of the new investors, so Pickard. That could quickly backfire and ruin the reputation of the profiteers.
Gamestop has not yet responded
In fact, Gamestop has not yet officially commented on the developments. The company seems to be in a state of shock. The ex-Gamestop advisor Dorothy Crenshaw describes the situation as a “crisis”. She assumes that Gamestop is working feverishly on a strategy how to cushion the inevitable fall in the share price as much as possible.
With the announcement of the business figures on March 26, 2021 at the latest, it would become clear to everyone that the price increase was substantially completely unjustified. The company’s reactions are therefore under close scrutiny, said Crenshaw. It is clear, however, that Gamestop has become a pawn in a culture war between the WallstreetBets rebels and the big hedge funds.
AMC and Silver Lake seize the opportunity
Investors in other WallstreetBets stocks have also noticeably kept their feet still. Only at AMC you have seized the opportunity presented and redeemed a $ 600 million loan for company shares.
AMC likes that, which gives them back a piece of financial freedom and that also likes the lender Silver Lake, who could now exchange a weakly secured loan for real company shares and would benefit from the development of the paper if there were to be anything to profit from .
Also interesting: Gamestop rally: Robinhood secures a billion in fresh funds, hinders the purchase of Bitcoin
