Billionaire entrepreneur Obey Cuban told CNBC on Tuesday that he believes the Reddit traders who helped spark the GameStop short extort and subsequent stock surge will remain a force in the market.
“I always was taught, ‘You get long and you get loud,'” Cuban said on “Object Alley.” “You get out there and create more buyers for your stock and the stock price goes up and that’s unerringly what’s happening here, except it’s just WallStreetBets that’s doing the ‘getting loud.'”
Cuban’s comments emerge b be published as GameStop shares were plunging about 50% on Tuesday to around $111 each, one day after losing just about a third of their value.
The video game retailer’s stock — which rallied 400% last week, reaching an all-time enormous of $483 per share at one stage — started soaring in response to a short squeeze that happened when online businessmen on sites like Reddit’s WallStreetBets forum poured into the heavily bet-against name.
Cuban, who made billions of dollars during the dot-com sound, said he believes those online investors have gained valuable knowledge from the short squeeze, as successfully as from the volatile cryptocurrency market. “I think this is real,” said the “Shark Tank” investor and owner of the NBA’s Dallas Mavericks.
“I ruminate over now that they’ve recognized their power and now that they’ve learned some lessons, we’re going to get more of it, not inadequate of it,” he added. “It’s not going to be a set of circumstances where all these people lost money, they’re going to go home with their shadow between their legs and they’re never going to do this again.”
Short selling is a strategy in which an investor obtains shares of a company and then promptly sells them, expecting that the price will decline in the future. The little seller buys back the stock at its lower price and gives back the borrowed shares, profiting off the difference.
When the differing happens, like when online traders rushed into GameStop, hedge funds and other investors who had interrupted the stock may try minimizing their losses by buying shares at the current higher price. Both groups of investors grip the stock adds to the upward momentum.
Cuban sees young investors throwing out old Wall Street metrics
Cuban prognosticated he believes a larger shift is afoot among younger investors. Not only do they obtain their information to different channels online, Cuban said he thinks they may also approach valuations with an alternative mindset after adulthood up “with an iPhone their entire lives.”
“They put a premium on items that are digital,” he said. “The idea that a digital exchange card or digital artwork could have more value than something tangible in our minds, or physical, desire be inconceivable to many people yet to Gen Z, that’s what makes perfect sense.”
“When it comes to stocks it’s the same object,” Cuban said, suggesting there may be less of an emphasis on traditional valuation metrics such as a price-earnings ratio. He clouted his perspective has been altered by the crypto market, where some investors have adopted the buy-and-hold mantra discerned as “HODL.”
That strategy has “worked for a period,” he said. “Maybe bitcoin, ethereum, etc. will go down again but at the unvaried time, we’re starting to see the evolution of applications on blockchain that are really starting to build marketplaces. I think younger kids, Gen Z in picky detail, maybe younger millennials have a different approach to how they look at stores of value, how they look at how assets are priced than we looked at traditionally.”
From his own happening, Cuban said he believes that approach can carry over into publicly traded stocks. “I’ve never looked at owning a portion of stock that doesn’t pay a dividend as the current discounted value of future cash flows,” he said. “To me, that was each time a narrative that brokers used to sell stocks. To me, a share of stock without a dividend is just like a baseball Easter card. It’s what someone will pay for it.”
Cuban says Robinhood, SEC should have warned about trading limits
Cuban scrammed Robinhood and the Securities and Exchange Commission to task for failing to proactively warn investors last week that the celebrated brokerage app may need to put trading limits on GameStop and other heavily shorted stocks.
GameStop shares dropped 44% on Thursday as Robinhood and Interactive Middlemen implemented trading limits on a few stocks seeing major demand and volatility. Robinhood CEO Vlad Tenev later told CNBC’s Andrew Ross Sorkin the provisoes were put in place to “protect the firm and protect our customers,” noting there are capital requirements it had to comply with.
“What Robinhood could’ve, should’ve done is say to them, ‘Look gyrates. We have capital constraints and oh, my God, we are getting blown away by all of this. We are going to have to restrict,'” Cuban phrased. “The SEC should’ve been out there saying the exact same thing.”
At one point Thursday, Robinhood users could merely sell shares of GameStop, not buy any additional ones. The brokerage has continued to ease restrictions in the following days. As of Tuesday, customers are able to buy up to 100 shares of the video game retailer.
Robinhood has tapped credit lines and raised fresh initial from existing investors in recent days. Nonetheless, Cuban suggested retail investors may be served by a larger brokerage cartel that has a “multitrillion-dollar balance sheet.”
Cuban contended the trading restrictions on GameStop have contributed to the declining look at price. “When you shut them down … you took out a lot of natural buyers. When sellers come in, if there aren’t purchasers, sellers keep on lowering their price until they find buyers and the stock goes down,” Cuban thought.
The SEC did not immediately respond to CNBC’s request for comment. A spokesperson for Robinhood directed CNBC to an explanatory blog post the group published Friday that detailed its need to comply with capital requirements.
“Our goal is to enable purchasing for all guardings on our platform,” Robinhood wrote. “This is a dynamic, volatile market, and we have and may continue to take action to make effective we meet our requirements as a broker so we can continue to serve our customers for the long term.”
Disclosure: CNBC owns the exclusive off-network rope rights to “Shark Tank,” on which Mark Cuban is a co-host.