The Vermont Department of Financial Regulation (DFR) cautions Vermonters about the significant risks associated with investing in publicly traded companies that are experiencing extreme price volatility due to stock speculation.
DFR’s warning comes in light of the stock price volatility experienced over the past few weeks by GameStop Corporation, whose shares trade on the New York Stock Exchange.
GameStop’s price volatility stems from an ongoing battle between a major U.S. hedge fund, Melvin Capital, and amateur stock traders on the internet, mainly from a Reddit community called r/wallstreetbets or WSB.
Melvin Capital holds considerable “short positions” in GameStop, meaning it assumes the price of the company will decrease over time. If the price increases, however, Melvin Capital will have to “cover” the difference potentially at a considerable cost.
“The rise in GameStop’s price is the result of speculation, not fundamentals, and the game of musical chairs could stop at any time.”
– Commissioner Michael Piecak, Vermont Dept. of Financial Regulation
The Reddit-based investors have banded together through social media to purchase and hold GameStop stock in an effort to drive up share prices, which has had a considerable impact on the stock price to date. GameStop’s stock was trading around $40 a share two weeks ago and closed trading yesterday at close to $350 a share.
The dramatic rise in GameStop’s stock price has caused retail investors to consider investing in the company, however DFR Commissioner Michael Pieciak urges Vermont investors to understand and carefully consider the risks before they do so:
“Sound investment strategies involve investing in companies with strong underlying value with a likelihood of producing long term returns,” said Commissioner Pieciak. “The rise in GameStop’s price is the result of speculation, not fundamentals, and the game of musical chairs could stop at any time. That could cause significant harm to retail investors and Vermonters need to understand these risks before putting their hard-earned money in jeopardy.”
Other stocks being impacted by the current price speculation includes AMC Entertainment Holdings, Inc., Bed Bath & Beyond Inc., and BB Liquidating Inc. (formerly known as Blockbuster).
DFR encourages Vermonters to talk to their financial professionals if they have any questions about their retirement accounts or investments.
If you believe you have been a victim of a scam please contact DFR at 833-DFR-HOTLINE or [email protected]
Comment Below... And find more stories on Water Cooler