Billings financial adviser Gary Buchanan says he's never seen anything like it: "In some 40 years in the business, I've not seen a part of the market be exploited like I've seen in the last few days."
The founder of Buchanan Capital LLC is referring to the trading frenzy surrounding GameStop, a struggling video game retailer that is suddenly the talk of the financial world.
The wild week began Wednesday, when GameStop shares surged to more than $480 a share. The soaring price, the result of a group of small investors who banded together on Reddit, to drive the stock's price to an all-time high.
GameStop's surge came much to the surprise of a number of Wall Street hedge funds that were betting GameStop's price would sink, known as "a short squeeze."
"A bunch of individuals, mostly young investors, are essentially flipping the middle finger to hedge funds on Wall Street," said Buchanan. "It's pretty unique in that respect. I'm telling all my clients or any investor, stay out of this game, there's going to be a lot of hurt coming."
The trading frenzy drove GameStop’s value up by more than $10 billion on Wednesday alone. But Thursday, several trading platforms placed temporary restrictions on the stock, and GameStop shares slid 44 percent.
"I can't see how anybody wins in the end," said Buchanan. "Both sides are going to lose a lot of money."
Still, Buchanan can't help but crack a smile over the whole GameStop story, pulled off by what Buchanan calls a new breed of investor.
"The smile on my face is, I'm not a big fan of hedge funds in general, and it is kind of fun to watch average small investors take hedge funds to task," Buchanan said. "It's even more fun to watch the hedge funds want more regulation to protect them when they're usually the ones trying to be free of regulation in general. So there is plenty of irony to go around."
And like most everything else these days, Buchanan believes the pandemic played a role in the GameStop story.
"The amount of new accounts opened at the major clearing houses and brokerage firms is just amazing," said Buchanan. "A lot of these new investors, and I'm not being critical, are bored young people. With the pandemic having them stuck inside, this is becoming a way to do something they think might be constructive."
As for what comes next, Buchanan isn't sure,, but he offered this advice.
"If you want to play a game similar that's more fun and less dangerous, put on your mask and go to your local casino," said Buchanan. "You probably have a better chance of making money and a lot less a chance of being hurt."