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Home News Feed Investing

Kevin O’Leary cheers GameStop frenzy despite risk as ‘real world’ lesson for novice investors

CNBC NewsbyCNBC News
January 29, 2021

Kevin O’Leary on Friday defended the right of retail investors to continue trading shares of GameStop, AMC Entertainment and other stocks that have been hyped online.

In an interview on CNBC’s “Squawk Box,” the O’Shares ETFs co-founder said investors should be allowed to speculate freely — regardless of whether they end up losing their own money and regardless of whether hedge funds and other short sellers get slammed.

“They’re learning about the risks of the market. … We forgot to educate them in high school, so let them learn in the real world, which is even better,” said O’Leary, a businessman and investor on “Shark Tank.” “I think this is fantastic what’s going on. Leave it alone. It’s a great thing that’s happening here.”

The Reddit-sparked frenzy in GameStop and other stocks, which has consumed Wall Street in recent days, delivers lessons for people on both sides of the trade, O’Leary contended. He said he hopes hedge funds and anyone who shorts stocks will think twice about doing so, knowing they could be vulnerable to an epic squeeze like the one with GameStop. Shares of the embattled video-game retailer surged as high as $483 apiece this month; as recently as September, they traded around $6 each.

“You now run a new risk: that these effective social media vigilantes are going to come after you and squeeze you as a short,” O’Leary said, a reference to the popular Reddit forum WallStreetBets. “That’s going to make a lot of hedge funds think a second time before they try and go short stocks, which I think is great.”

Short selling is a strategy in which an investor sells borrowed shares in hopes of buying them back at a lower price in the future. They return the borrowed number of shares and pocket the price difference, if the stock actually falls. When the opposite happens, a short seller may try limiting their potential losses by purchasing the stock at its current higher prices. 

Perhaps more importantly, O’Leary said, the virality of the GameStop trade — aided partly by zero-commission brokerage apps such as Robinhood — has sparked an interest in investing that might not otherwise have been there.

Some critics of the recent action have argued that better protection needs to be in place to prevent novice investors from being burned if the stock price collapses. O’Leary acknowledged newcomers to the market who join the speculative party may end up losing money, but he said “every investor loses money.”

“The bottom line is, when you put money in harm’s way in the market, you risk it. That will always be the way” the market works, said O’Leary. “The definition of the market is speculation. When you buy and stay long a stock, you’re speculating the profits you hope are going to come finally appear, and you take that risk,” he added.

Disclosure: CNBC owns the exclusive off-network cable rights to ″Shark Tank,” on which Kevin O’Leary is a co-host.

Read The Original Article on CNBC News

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