February 16, 2021

The Shocking Truth of the GameStop Stock Investment Controversy

Even if you’ve been living under a rock, you will have seen the headlines surrounding the so-called GameStop “short squeeze,” which pitted a group of unruly Redditors against some of Wall Street’s biggest hedge funds. 

But now the dust has settled, it’s become clear that, apart from those hedge fund managers at Melvin Capital, the ones left holding the bag have been the unlikely bunch of Reddit investors. 

Before drawing any conclusions, it’s worth just quickly recapping the events of late January and early February.

“Average Joe” Redditors Take on Wall Street Hedge Funds 

Here is not the place to get into the nitty-gritty financial details, so let’s just run over the basics of what happened. In short, a few amateur investors who like to share ideas on stock picks discovered through their research that many institutional hedge funds had heavily shorted the video game retailer GameStop. 

Those in the subreddit named r/WallStreetBets figured out that all they had to do was buy the shares and force the price up just a little bit, and the hedge funds would have to buy back stock to cover their short positions, forcing the price up. As prices rose, the hedge funds had to buy even more stock driving the price even higher. This is what’s known as a “short squeeze.” 

As word spread about what was happening, thousands of amateur investors looking for a chance to make some quick gains while sticking it to Wall Street jumped on board too. On the 5th of January, the stock was priced at $17.37. By the 27th of January, it was worth $347.51. 

Reality Shakes Those New to Investments 

Of course, those late January highs were not based in reality. Many bought in at, or close to, the peak. With the price since crashing back down and stabilizing at around $50, many investors have been left licking their wounds. Some of them made and then subsequently lost millions over the course of a few days by missing the chance to sell.  

The reality has hit hard. No matter whose side you were on in this David vs. Goliath battle, there’s one truth we can all agree on. Stock investments are risky. Very few people manage to make them work in the short term, as many individuals tried to in this story.   

There are only a few people on the planet who have ever successfully picked stocks, period. That’s why people like Warren Buffet and Carl Icahn are household names. But what you’ll notice is that they took a long-term approach to investing and have been in the market for over 100 years between them. Sadly, we never hear about the millions of others who lose it all chasing risky stocks.

If these events of the past few weeks have shown us anything, it’s that stock investments can be extremely volatile, whimsical, and not based on facts or reality. It’s never a good idea to invest in market sentiment. Just look back at what happened in 2008. Everybody thought the market couldn’t possibly go down. We all remember how that ended. 

So what’s the solution? Investing in rock-solid, asset-backed instruments such as distressed notes is an excellent place to start.

Distressed Notes Provide the Kind of Returns That GameStop Investors Were Seeking Without the Associated Risk 

We don’t have to be the ones to tell you that your stock investments can go to zero. What happens then? You’re at the back of a line containing a thousand-plus people trying to claw back pennies on your long-gone dollars. 

That’s why asset-based investing makes so much more sense. You can still enjoy up to double-digit ROIs without having to take on anywhere near the same level of risk. When you purchase a distressed note, your investment is backed by the home the note is tied to. 

If you are unable to renegotiate the terms with the homeowner and convert the note into a re-performer, you can orchestrate a deal to get the keys (such as a deed in lieu) or foreclose the property. What you’re left with is a house at 30 to 40% less than market value, which you can fix up and flip for potentially a sizable double-digit profit

If you live in a non-judicial state, this process could be wrapped up in as little as 90 days. That’s right; 90 days for up to a 40% return, with minimal risk. Doesn’t that sound better than buying a stock and praying that it will “go to the moon,” as so many Redditors have phrased it? 

The best part? The whole process can be outsourced to a third party, and once you’ve made money on your distressed note, you can reinvest your proceeds into the next one and make even more. Over the course of several years, you could have made far more of an ROI than any stock investment could give you.

Work With Revolve Capital to Create a Long-Term, Asset-Backed Investment Strategy 

If you believe in creating a sustainable, long-term investment strategy backed by the safety net of a real estate property, then feel free to go ahead and learn more about the distressed note buying process in our FAQ section.  

Alternatively, if you would like to browse the distressed note opportunities available from Revolve Capital, you can go ahead and submit a buyer application form to unlock our portfolio stratification page (subject to verification and signed NDA). 

We look forward to working with you here at Revolve Capital Group.