ROCKFORD, Ill. (WTVO) — A rebellion between internet traders and Wall Street has been unfolding as short sellers fight against the institutional investors.
Is it a tale of David and Golliath? Or just reckless trading behavior, resulting in thousands of people losing the money they invested?
“Short selling is basically betting against a stock,” said registered financial consultant Antonio Fillipone.
John Aldrich, president of Focus Financial Advisors, further explained, “They borrowed shares and then sold them, to try and make money back later, or by buying them at a lower price.”
Aldrich says “short selling” is a common practice for professional investors.
This week, retailer GameStop became a prime target.
“It’s kind of a failing company,” Aldrich said. “You could almost compare it to Blockbuster Video. Everybody is going to streaming video games, and the like.”
But a social media movement to purchase GameStop stock gained major traction, costing the short sellers billions of dollars.
“I haven’t seen anything like this in my career, of individual investors banding together like this and causing some damage to some of the big guys on Wall Street,” Aldrich said.
Experts issued a warning to those considering investing to take advantage of the phenomena, saying it may already be too late.
“If you were one of the early people to get in a few weeks ago, when [GameStop shares] were at $19, before it took off, you could have made a killing, right? Problem is, a lot of people just started hearing about it this week, when the stock was $300 a share. Now, it’s back down to $150,” Aldrich said.
“Any time you buy an individual stock, it’s one of the riskiest investments you can make,” added Filippone. “There’s so many other ways to invest in the market without putting yourself at risk. The highly concentrated individual stocks are always risky and, in this situation, they are particularly risky.”
Fillipone says there could be serious fallout.
“I wouldn’t be surprised if we had a law or two come out of this, to prevent manipulation of the market,” he said.