Until it was not. The stock surged from under $20 to $483 in just a few days before falling back to $50 as I write. The new “swarm traders” (so dubbed by The Economist recently), denizens of Reddit and Robinhood, battled the Wall Street hedge funds for control of the price. Some investors won, some lost; and most came away very dazed.
What is the value of GameStop, $4 or $483 or $50? At this point it is anyone’s guess; but the old maxim still stands, that the stock market is only indirectly related to economics. It is more a function of human fear, greed, hope, and doubt, all overlaid on a business cycle. If you want to know how Wall Street works, study human nature. Here are some observations from the past on human nature and investment markets.
“Men, it has been well said, think in herds; it will be seen they go mad in herds, while they only recover their senses slowly, one by one.”
– Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds (1841).
“Jim Grant, the editor of Grant’s Interest Rate Observer, in late 2006 decided to investigate those strange Wall Street creations known as CDOs (Collateral Debt Obligations). He asked his young assistant Dan Gertner to see if he could understand them. Gertner dug and dug and finally concluded that no matter how much digging he did he’d never be able to get to the bottom of what exactly was inside a CDO – which, to Jim Grant, meant that no investor possibly could either.”
– Michael Lewis, The Big Short. (investors in subprime assets eventually lost one trillion dollars in the 2008 market bust).
“The speculator’s deadly enemies are: Ignorance, greed, fear and hope. All the statute books in the world and all the rules of all the Exchanges on earth cannot eliminate these from the human animal.” And…
“It was never my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! … I found it one of the hardest things to learn.”
– Edwin Lefevre, Reminiscences of a Stock Operator (1923), on the trading life of Jesse Livermore, one of the greatest stock speculators ever.
“Wall Street is always the same – only the pockets change.”
– Gertrude Stein, author.