Bill Gates told CNBC that the trading craze fueled by Reddit on GameStop and other stocks was reminiscent of betting on a casino and not investing.
“People like to play. Unfortunately, it’s a zero-sum game,” the philanthropist billionaire told CNBC’s Andrew Ross Sorkin in an interview that aired on Thursday in the “Squawk Box”.
“The idea that you drive an assessment path, far beyond what is rational, is difficult to see socially as a good use of time,” added Gates. “And, you know, people who arrive early make an unexpected fortune. People who arrive late feel like an idiot.”
Comments from the Microsoft co-founder were broadcast hours before the House Financial Services Committee hearing on GameStop’s short tightening last month. The video game retailer’s stock skyrocketed as retailers stacked the name, which has been strongly opposed by hedge funds.
GameStop traded below $ 20 per share in early January, before reaching an intraday high of $ 483 on January 28 – an increase of more than 2,300%. The shares traded above $ 46 a share on Thursday.
GameStop had been one of the stocks that most bet on Wall Street, and some retail brokers recognized their technical vulnerability to a short squeeze. Short sellers were dispatched last month, while Reddit users and online investors rushed to GameStop to buy stocks or call options.
Short sellers borrow shares of a stock and then promptly sell them back on the market, with the intention of repurchasing them later at a lower price. Then, they return the borrowed shares and profit from the difference. When the opposite happens, as with GameStop, the sellers try to minimize their losses by buying the shares back at higher prices.
Social media, particularly forums like Reddit’s WallStreetBets, proved to be a powerful force during the GameStop trading frenzy. Steve Huffman, CEO of Reddit, and Keith Gill, a prominent user of WallStreetBets, are ready to testify at Thursday’s hearing. Joining them are Vlad Tenev, CEO of Robinhood, and Gabriel Plotkin, who runs the hedge fund Melvin Capital. The fund was sold on GameStop during the large stock increase.
Gates expressed concern about the role that social media played in the GameStop saga and its potential implications for the U.S. stock market.
“Reddit forums where people have a reason to push something and get away with those high prices, you know, the SEC has to look at this because we don’t think of the stock market as just playing a casino role,” said Gates, the third richest person in the world. “We have restrictions on gambling activities.”
Others recognize the highly speculative nature of the GameStop frenzy, but claim that risky trading has long been a feature of the market.
“Every investor is a speculator, whether you hold a stock for a millisecond or for 10 years, and the market has to accommodate that,” Kevin O’Leary told CNBC on Wednesday.
“When you invest, you win and lose. You win, you lose money,” added O’Leary, co-founder of O’Shares ETFs and investor in the “Shark Tank”.
Some said the GameStop craze carried populist characteristics, with smaller investors trying to apply it to hedge funds and large Wall Street companies. Gates said that if that is really the goal of individual investors, it will not end well.
“If the public investor in general is placed against hedge funds, over time, hedge funds will take the lead,” said Gates. “I’m sure there will be a lot of stories of people getting caught up in the frenzy, which really didn’t serve any social purpose.”
Disclosure: CNBC has exclusive off-cable rights to ″ Shark Tank, ”in which Kevin O’Leary co-hosts.