|I have a great idea for my own movie. It’s an improbable high stakes David versus Goliath financial thriller, with a twist in the tail. I’m going to call it Caught Short.|
Here’s how it goes… A bunch of little guy retail investors spot that some greedy hedge funds have “shorted” a number of unloved stocks, and they come up with a cunning plan.
(Note: shorting is where you borrow some shares from an investor in a company and immediately sell them in the market. You do this in the hope that you can buy them back later for less than you sold for, and then give them back to the investor who lent them to you. You therefore make a profit on the fall in the share price. Simples!).
In my movie the stocks in question include a bombed-out high street retailer nobody shops in anymore, a manufacturer of legacy technology devices people only own for their antique value, and a cinema chain being battered by the effects of coronavirus. The kind of overlooked shares that sit on the edge of the stockmarket dancefloor and never get asked for a dance.
|The plan is hatched in a little known online chatroom used by investment geeks hiding behind adolescent trading monikers like Deepvaluedog, and the aim is to exact revenge on the hedge fund barons by buying shares in the companies they’ve shorted, pushing their share prices up.|
And then to buy more… And push the prices up more… And then to buy more… And then to force some of the hedge funds to close their positions because they can’t take the losses, which means they have to buy the shares too, to give them back to the investor they borrowed them from…and the share prices go up more still.
Some of the shares go up more than ten-fold in less than a month. Their company valuations rocket from less than $2bn to more than $20bn. Hedge funds suffer huge losses, some private investors make a fortune, esteemed academics describe the scenes as “unprecedented”, politicians jump on the bandwagon and David celebrates as Goliath retreats battered and bruised from the field of play.
There may ultimately be very few winners in this high stakes rollercoaster ride, but there is a sense that perhaps, just perhaps, we have witnessed a shift in the balance of power across markets, away from large institutions and back towards some of the people whose money is actually on the line.
And the twist in the tail? All this actually happened last week.
CAVEAT – “When it’s no longer a Game…Stop!”