Billionaire businessman Mark Cuban told CNBC on Tuesday that he believes the Reddit brokers who helped trigger the GameStop sales squeeze and the subsequent rise in shares will remain a force in the market.
“I’ve always been taught: ‘You get long and loud’,” said Cuban in “Squawk Alley”. “You go out and create more buyers for your stock and the stock price goes up and that’s exactly what’s going on here, except that it’s just WallStreetBets that are ‘making a fuss’.”
Cuban’s comments came as GameStop’s shares plunged about 50% on Tuesday, to about $ 111 each, a day after losing nearly a third of their value.
The video game retailer’s shares – which rose 400% last week, reaching a record high of $ 483 per share at one stage – started to skyrocket in response to a small squeeze that happened when online traders on sites like Reddit’s WallStreetBets forum plunged into the strong bet-against stock.
Cuban, who made billions of dollars during the dot-com boom, said he believes these online investors have gained valuable knowledge from short squeeze, as well as the volatile cryptocurrency market. “I think this is real,” said the “Shark Tank” investor and owner of the NBA’s Dallas Mavericks.
“I think now that they have recognized their power and now that they have learned some lessons, we will achieve more, not less,” he added. “It will not be a set of circumstances in which all these people have lost money, they will return home with their tails between their legs and they will never do that again.”
Short selling is a strategy in which an investor borrows shares in a company and sells them promptly, hoping that the price will fall in the future. The short seller buys the shares back at the lowest price and returns the borrowed shares, profiting from the difference.
When the opposite happens, such as when online traders rushed to GameStop, hedge funds and other investors who had sold the shares can try to minimize their losses by buying shares at the current highest price. Both groups of investors who buy the shares contribute to the upward momentum.
Legal notice
Disclosure: CNBC holds exclusive cable rights off the network for “Shark Tank”, of which Mark Cuban is co-host.