'It's going to come back down': Financial expert warns investors trying to capitalize on GameStop craze

'Accelerated stock price ... will be short-lived,' Keith Singer says
Posted at 1:49 PM, Jan 29, 2021
and last updated 2021-01-29 18:37:39-05

WEST PALM BEACH, Fla. — The wild rise of Game Stop shares on Wall Street made some small investors winners, while some big investment firms took heavy losses.

Confused about what's going on with GameStop? Financial expert Keith Singer JD, CFP® broke it down and took your questions on the WPTV Facebook page.

MORE: GameStop soars again; Wall Street bends under the pressure

It has been led by a grassroots movement started on Reddit, and now those small investors are targeting other companies that are on short-sellers' lists.

Singer said what is happening is more than just investing, but the Reddit users want to hit back at Wall Street.

"People are saying, 'I don't care about the money. We're never selling. ... we're going to drive these short sellers out of business,'" Singer said.

"There's companies out there that borrow stock, drive the price down and then sell it for a profit," Singer said.

But those companies were suddenly facing huge losses as the stock reached astronomical levels, and they were forced to buy the stock back at much higher prices.

The practice is known as a "short squeeze," usually sometimes occurring between sophisticated investors.

Once the price of the stock goes up, he compares what is happening to a snowball effect.

"The companies that are short-selling, they borrow the stock, now they have to buy it back, and that makes the price go up more," Singer said. "It's like a rocket."

However, Singer said this accelerated stock price for GameStop will be short-lived.

"Ultimately, it's going to come back down because the company doesn't make nearly enough profits to justify this valuation," Singer said.

He doesn't believe what the Reddit users did was against the law, but we might see some changes following this precipitous increase in value.

"It's not illegal, but I wouldn't be surprised if at one point it does become illegal because it's not healthy for stock markets like this," Singer said.

In the meantime, Singer said investors need to be careful if they think they make money off this venture.

"I'm sure there are people out there that are just trying to just catch the wave ... catch some profit and get out, and there's some people who are going to get hurt," Singer said. "They're going to get caught holding the bag when these stocks do come back to Earth."

Kathy Stone
Kathy Stone of Boca Raton made about $1,200 buying stock in GameStop this week.

Kathy Stone of Boca Raton made two purchases of GameStop this week.

"It was good. I made $500 the first time, and $700 the second time," Stone said. "I just had to be a part of it. I felt like I had to be there."

The company's stock was back to the races Friday, and the overall U.S. market is down again, as the saga that's captivated and confused Wall Street ramps up the drama.

GameStop shot up more than 70% in afternoon trading, clawing back most of its steep loss from the day before, after Robinhood said it will allow customers to start buying some of the stock again.

GameStop has been on a stupefying run this month and becomes the battleground where swarms of smaller investors see themselves making an epic stand against the financial elite. The S&P 500 was down 2.2%.