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Assessing Whether Quants And High-Frequency Trading Are The Real Cause Of GameStop Frenzy

Dec. 02, 2021 7:15 AM ETGameStop Corp. (GME)HOOD39 Comments
Valuentum profile picture


  • A report by the US Securities and Exchange Commission (SEC), released in mid-October 2021, sheds new light on the manic "meme stock" trading activity seen over the past year.
  • We take a look at what the report had to say regarding GameStop and its broader implications.
  • It appears that institutional investors played a much bigger role in meme stock trading activity than was first reported with an eye towards quant, trend, and momentum funds.

GameStop Store Munich

FinkAvenue/iStock Editorial via Getty Images

By Valuentum Analysts

Third-quarter 2021 earnings season was thrust upon a marketplace that had been preoccupied with talk over supply chain disruptions, increasing inflation expectations, unfortunate distractions from trading activity by key officials at the Fed, and Chinese

This article was written by

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Valuentum owns shares in the DIA, VOO, SCHG, SPY, and QQQ. Brian Nelson currently owns shares in SPY, SCHG, DIA, QQQ, VOT, BITO, and IWM. This article is for informational purposes only and should not be considered a solicitation to buy or sell any security. Securities mentioned in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.

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Comments (39)

John Alford profile picture
Excellent article and a timely reminder that Bogle himself saw the danger in the now widespread adoption of indexing. On top of the buy it no matter what aspects undercutting fundamental analysis you point out indexing along with algos/Quants tend to do, the ongoing massive in-flows of what I call "double passive 'investors' "-retirement plan participants with no real financial education or interest buying index ETFs or funds month after month-cause a "buy high, buy higher" phenomenon we've likely never seen. Will the music stop? Will there be a black swan event causing a less transient roll-over? Not sure I want to see if it happens or not quite honestly.
Ed Grey profile picture
As far as "do my own research" on Gamestop suggested by people who get all their information from sketchy websites, I found this instead:

I already saw this a while back:

The interviewee, Patrick Boyle, also has his own Youtube channel, which I recommend in general. To me, Boyle is knowledgeable, disinterested, and also very witty. Watching his videos is like taking finance classes that are both entertaining (through his dry and sly wit) and very informative. He'd be a good instructor for the Great Courses videos that cover finance, and he does teach at King's College in London.

I think it's very telling that none of the bulls commenting here will say what it is that Gamestop will be selling in sufficiently large quantities to grow into its stratospheric share price. Used games? Collectibles? Cryptocurrency? NFT's? Sex robots? Something new?
Gunne profile picture
@Ed Grey
To me, it's very telling that the bears on Gamestop always are scornful/refuse to do some DD on Reddit while we know this site is full of members that are younger than most of us on Seeking Alpha.

We are talking about a company that is involved in the gaming market.

I grew up playing with Atari, Commodore, but have not been involved in gaming that much for the last couples of decades.
I am pretty sure there are plenty of the so-called smart money hedgies around who could learn a thing or two about gaming from the younger ones, no matter if Kenny downloaded a digital game ๐Ÿคฅ

You talk about intrinsic value...What is the intrinsic value of those paintings that costs millions of dollars that the hedgies seem to like?
The paint, a brush, and a velvet. That's it, if it weren't for demand/supply.

What we are dealing with in this particular situation is a totally distorted market of shares of Gamestop.
Because if you create a market where shares short sold don't have to be bought back, and you create an infinite supply of those shares, how could we find any true value, anyway?

All hail to Queen Kong, Suzanne Trimbath.


People call this the people's stock.
I agree, after all, the public is the majority shareholder


So, in my opinion, the best thing that 'the people' can do is get their shares registered in their own name.
Why? Because the shares will have to be recalled, thus bought back, among other obvious reasons.

The only ones i trust to lend their shares are the current insiders.
They want what's best for the company AND their shareholders, and i'm pretty sure they don't like hedgies as well.

The actions that have been taken (like buying the shares from ex-employees) are telling.
Sometimes it really is that simple.

On top of that, it gives more evidence of the fuckery that continues to happen with this stock.

Gamestop is the first (for me, the only) memestonk, so let it be the first one that has their retail shareholders registering the float, too.
And let's have some fun doing it, too.

We will get what we deserve.
You see, i can be one too, but never in the way the mayo gang is.


If it's up to me, it literally will be no cell/no sell.
Best Seasons Greetings, hedgies

Ed Grey profile picture
@Gunne "Due diligence on Reddit"??? Is that where one does it? Reading other people's speculations isn't exactly rigorous research. Expert gamers aren't necessarily all that helpful in understanding a related company's business prospects, just like race car drivers and automotive experts aren't necessarily all that helpful in evaluating car and parts manufacturers, even if they buy stock in certain of the companies.

The total amount of stuff sold in the gaming market is probably increasing every year, but Gamestop's share of that has been declining. Just what is it that Gamestop will be selling more of, instead of less?

Why should I sift through screen after screen of Reddit screeds, and probably get the wrong idea (in your opinion), when you could just spit out the answer in a brief sentence or two?

And you'd also need to explain the multi-billion dollar volume of trading that went way beyond what the "apes" can afford.
Gunne profile picture
@Ed Grey
The "smart" money surely knows better, right?
Do i need to remember you how dumb some of that smart money can be?
Perhaps you need to watch the Madoff documentary...


Red flags all over the place, they were ignored, many looked away for the obvious reasons, and not that many went to jail.
At the age of 6, i probably would have been suspicious about it.

Ed Grey profile picture
This was well worth reading! Now it seems obvious, but it wasn't obvious before I read it.

Since this comment is no longer the first, I need to add that my remark was about the article.
xamd profile picture
Thanks a lot. Finally a good (bear ish?) article on game stop. Good points and then just as good rebuttal from posters especially below when you add your comments author. Keep commenting and we can read a great discussion, FINALLY, without senseless trolls on gamestop. Thanks again for researching and writing. Disclosure, long for nearly two years now.
Take any stock in the market. Sell short over 100% of the shares in existence and the stock price will plunge well below its fundamental value. Then repurchase all the shares that you sold short in the space of a week or two. The price will rocket way above its fundamental value. That is the story of Gamestop.
Gunne profile picture
They didn't buy to close, his nose is now bigger than the George Washington bridge.

1) 70% of battle casualties are suffered during a retreat. GME is not a meme stock and the only manic situation is the short sellersโ€™ attempt at what is about to become a very disorderly retreat called short covering at market price. It is a debt free, cash positive, Fortune 500 company with rapid maneuvre into blockchain e-commerce marketplace.

2) What (almost) happened with GME in January was attempted reversion of its stock price towards its true value based on supply and demand (and no meaningful short covering of the 140%+ SI)

3) short sellers were able to offload their SI (reducing the self reported SI number on paper) and sweep the massive short position under derivative/swaps rug with an even bigger short position since the January event. Now the Chinese real estate junk bonds they collateralized will shrink exposing their accounts to margin calls.
HootieTreads profile picture
@-^v-Liberty^v- Good summary of current events for $GME. Any evidence that they used Chinese real estate junk bonds for collateral? I have read that the same basket of stocks gets collateralized against one another continually. KOSS gets collateralized against GME which then rolls over and collateralizes AMC and whatever else etc. That is why you see the rolling spikes in these stocks every 90 days or so.
Ed Grey profile picture
@-^v-Liberty^v- And when did this "rapid maneuver" occur? And what are they selling in this "blockchain e-commerce marketplace"? And how much?

Does the "blockchain" part mean that they're selling something they wouldn't or couldn't otherwise be selling?
Gunne profile picture

=> Short sellers were able to offload their SI (reducing the self reported SI number on paper) and sweep the massive short position under derivative/swaps rug with an even bigger short position since the January event.

Exactly...Nothing of the self reported short interest numbers makes any sense. They can't hide it anymore. The truth reveals itself, in the end, if you want to think for yourself, and not be like a gullible herd of sheep.

And as long as you trust the ones, that are trustworthy.
In this case, it's the Gamestop management.
Basically most involved in this saga have been lying about the short interest from January.

When they altered the numbers and the SI was "supposed" to be way down, the Gamestop management made it clear in the March SEC filings that this wasn't the case.

=>A โ€œshort squeezeโ€ due to a sudden increase in ๐™™๐™š๐™ข๐™–๐™ฃ๐™™ ๐™›๐™ค๐™ง ๐™จ๐™๐™–๐™ง๐™š๐™จ of our Class A Common Stock ๐™ฉ๐™๐™–๐™ฉ ๐™ก๐™–๐™ง๐™œ๐™š๐™ก๐™ฎ ๐™š๐™ญ๐™˜๐™š๐™š๐™™๐™จ ๐™จ๐™ช๐™ฅ๐™ฅ๐™ก๐™ฎhas led to, and may continue to lead to, extreme price volatility in shares of our Class A Common Stock.

And this is from September.


I believe RC gave us even more reasons to not believe a word the sell-side/short cabal was claiming on the proxy vote results.


Seven of the elections show a vote total of 55,541,279.
The Larry Cheng election, however, shows a vote total of 55,541,280.

Now you know why RC Ventures/Ryan Cohen owns 9.000.001 shares ๐Ÿง™โ€โ™‚๏ธ
Ryan Cohen, as the manager, may be deemed to beneficially own the shares of RC Ventures, according to the SEC filings.

So what does it mean (most likely)?
RC was pointing out that the 55.541.280 M shares were not in any way reflecting (not by a long shot) the real amount of "shares" that have been created.

Even if it were so, according to Ortex (who has proven to be under-reporting/not trustworthy as well) there were 13,247,404 M shares on loan on the record date of the proxy vote.


And there were 11,110,000 "officially" reported shares short to FINRA.


source : Marketbeat.com

These 2 combined are 24,357,404 M shares.
Add the 55.541.280 M shares from the proxy vote and you have already
79.898.684 M shares.

That's already 9 Million shares above the shares outstanding at the time.


source : Proxymonitor

And you can bet your ass very little institutional shares were voted, and surely not every retail investor submitted their vote.
On average, 28% of retail investors submit their vote the last couple of years according to Proxy Pulse.

We see one glitch after another.


Just a couple of days ago 71,196,206 M shares were reported short by Refinitiv,


Thomson One




And then they act like it never happened...


The short cabal drops the price 10% while Fidelity buy/sell ratio is 90%.


So, it's all debunked from the start, but now, after all this time and after the theft in broad daylight, it seems that some of the media wants to talk to apes? It sure won't be me, i just love the stonk of stonks #GME


And why, because individual retail investors are simply using their legal right to claim ownership of what they paid for with their hard earned money by registering their shares??

Thanks, but no thanks, they don't deserve my trust/time.
Gamestop, an American icon by now, and their management, workers do deserve my time/support/trust, so i'll just do that.

Feel free to share all you want, too.


No financial advice.

PS. Did you read?

The Omicron variant has been detected in at least 38 countries but no deaths have yet been reported.

There was 130% of the float shorted and 160% owned by institutions. Thatโ€™s why it blew up not the little guy.
Even if robinhood traders only had an average of $240, why make the logical fallacy of assuming all 900,000 GME retail traders were robinhood accounts?
Some very basic flaws as the foundation for your argument.

Sure there has also been significant institutional trading of GME, but none of that explains why it is still trading near $200.(and has been since March)

Thereโ€™s been a lot of effort to dismiss retail traders, but the underlying reality is hard to ignore.

Do better next nextโ€ฆ
Valuentum profile picture
@jasonomer Hi thanks for the note.

We think what you are trying to say is that, even if you assume that all of the Robinhood traders, based on the stats provided, were involved in GameStop, one of perhaps hundreds wildly volatile stocks at the time, that it still wouldn't amount to much or explain why shares of these meme stocks are retaining a significant price-to-fair value disconnect.

This is the basis for our view that it is not just retail traders and that there is more to the story, that there were some pretty large accounts moving these small cap stocks around (and that more disclosure regarding the strategies involved would be beneficial to investors). You probably mean that there are flaws to argument in the "GameStop Report" regarding the causes of the trading, in that it was purported to be driven primarily by retail traders.

Always our very best,

The Valuentum Team
Gunne profile picture

=> GameStop, one of perhaps hundreds wildly volatile stocks at the time.

That says enough about your bias...
Do i need to remind you of the congressional hearing?
It was called...
Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide

Do i need to remind you of the volume/dollar amounts involved at the time, the rise in Wall Street Bets members, the "idiosyncratic" event (DTCC), the planes flying with banners, the tweet from Elon, DFV, etc...

So no, it's silly to act like it was just one of perhaps hundreds wildly volatile stocks at the time.

=>meme stocks are retaining a significant price-to-fair value disconnect.

That's obviously your opinion, again.
In June, Morningstar had fair value at $315 already.


Also back in June, Jefferies had a price target of $190

Ed Grey profile picture
@Gunne How much do these much larger "fair value" analyst prices simply reflect recent price history rather than an improvement in the underlying business?

The last time GameStop had a reasonably high full-year profit was in 2017.

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