A Short Squeeze

 In the last few days there has been a short squeeze on the stock of GameStop that was reported to cost some hedge fund speculators a lot of money. Some of the squeezers were retail investors who had organized their efforts to bid the shares up online.  It was a fairly big news story, and as happens too often these days it became a political one.  Conservative populists (real and fake) played it up as Capra-esque  victory of a bunch of plucky little guys over the despised establishment.  Power hungry Democrats were pretty sure it demonstrated a need for them to be given more power.  Some friends of the establishment saw it as a threat to the status quo and wanted the government to do something about it. Some critics of the establishment saw it as somehow proving that the “system” was rigged against the individual investor and wanted the government to do something about it. There was plenty of nonsense going around about the fairness or unfairness of the stock market.

Part of it was a due to a failure to understand the difference between investing and speculating. An investor buys a stock or a fund of stocks to share the profits and participate in the growth of a company or a group of companies.  A speculator buys (or shorts) a stock to place a bet on what he believes will be the (usually) short term change in its price.  Some people only invest. Some only speculate. Most people do some of each, sometimes without knowing  which among their activities  is which.  The game is not rigged against the individual investor. In some ways it is rigged in favor of him. He has to satisfy no one but himself and can afford  to take a long term view of  things. He does not have to fret over results each quarter. He can be patient and hold cash waiting for what strikes him as a good opportunity. It is different for the individual amateur  speculator. He is playing a short term, often zero sum game against talented, experienced  professionals with deep pockets. It is similar  bringing one’s  weekly pay check to a high stakes poker game with Amarillo Slim and Sky Masterson at the table. The game is not crooked, and sometimes the cards will be kind, but the odds are not good.  People who try it should know that and  be happy when they win and not whine when they lose. Big time professionals do not become big time professionals by losing to amateurs very often.

This time some of the amateurs beat some of the professionals. I find that amusing but neither important nor threatening and see no need for the government to do anything beyond checking for illegal activities. The amateurs are adults. There is no call to protect them from themselves, and surely  no reason to protect the hedge fund boys and girls from the consequences when   the cards sometimes run against them.