![]() Many small investors who “get on the train” late and buy at the inflated prices - especially those attracted by the extreme price moves and media coverage - will be left holding the bag. ![]() It is clearly a speculative price bubble and has some characteristics of a Ponzi scheme. Put simply, it is a money-losing company in a competitive and quickly changing industry. Its revenue peaked in 2012 at US$9.55 billion and had dropped by a third as of 2019. GameStop has been slow to adapt to this new reality. Most video game sales now take place as digital downloads. The company is a brick-and-mortar chain of video game stores. GameStop fundamentals are, to put it mildly, lackluster. The GameStop saga feeds into this storyline.īut GameStop also illustrates what happens when stock prices don’t reflect reality. The more jaundiced view of markets focuses on episodes when markets seemingly go crazy and on the speculative gambling behavior of some traders, such as hedge funds. ![]() Simply would not exist as we know them today without access to capital markets. Their core purpose is to efficiently connect investors with companies and other organizations that will make the most productive use of their cash.Īccurate market prices, meant to reflect a company’s expected profits and overall risk level, provide an important signal to investors whether they should hand over their money and what they should get in return. The first thing to keep in mind is that markets aren’t a big casino, as some seem to believe. What’s the problem when the little guy gets a chance? According to that narrative, the big guys on Wall Street have been getting rich gambling on the stock marketįor years. Capital markets aren’t casinosĪs a David vs. When that stops happening, a market collapse may be not far behind. As a finance professor who does research on how markets respond to new information, I believe it is important to maintain a close link between security prices and fundamentals.
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