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So I've seen a lot of people say they don't understand what's happening with the hedge funds and such, and why people buying GameStop stock costs rich investors money. So I'ma try and make it as basic as possible using a metaphor:
Borrowing books from people. (1/8)
Borrowing books from people. (1/8)
So, let's say you have this dude named Jeff. Jeff comes to you and asks to borrow a book from you on Monday, promising to give it back by Friday evening. He also does the same thing with all your friends, borrowing the same book from all your friends). (2/8)
Now, when he does this, one copy of the book is worth $30. So Jeff sells all the books on eBay for $30 a pop, and waits.
With a buncha books now in circulation again, the book isn't worth as much, and the worth of the book falls to $20 just because supply > demand. (3/8)
With a buncha books now in circulation again, the book isn't worth as much, and the worth of the book falls to $20 just because supply > demand. (3/8)
On Friday morning, he buys exactly the same number of books he sold at $20 each, then gives everyone their book back.
On paper, you still have your one book. The only thing that changed was that Jeff gamed the system so that he made $10 off everyone who he borrowed from. (4/8)
On paper, you still have your one book. The only thing that changed was that Jeff gamed the system so that he made $10 off everyone who he borrowed from. (4/8)
Now, imagine a scenario in which some randos online - that you've never met before - hear about how you and your friends are getting scammed. So, acting entirely on principle, they decide to buy every single copy of that book that exists. (5/8)
As such, demand is now dramatically greater, so the book's value jumps to $300. Now, Jeff is still required, by law and contract, to get everyone their books back by Friday evening. So he's forced to buy the books back at a significantly higher mark than he sold them for. (6/8)
This means that now, rather than GAINING $10 per person he borrowed from, he now LOSES $270 per person.
This is why people are saying "Don't sell yet." If people sell now, more books are in circulation, the value drops, and Jeff won't lose as much money, if any at all. (7/8)
This is why people are saying "Don't sell yet." If people sell now, more books are in circulation, the value drops, and Jeff won't lose as much money, if any at all. (7/8)
If people wait, it could cost Jeff (along with Jeff's rich buddies, Bill, Bob, and Mark) millions.
Investors aren't scared of poor people making money. They're scared of poor people
- Keeping them from making money
- Costing them money
Thank you for coming to my TED Talk (8/8)
Investors aren't scared of poor people making money. They're scared of poor people
- Keeping them from making money
- Costing them money
Thank you for coming to my TED Talk (8/8)
