– what is short squeeze in stocks
In: Economics
Others here have already given excellent explanations of what a short squeeze is.
However, OP, if you or anyone else are wondering about this as it relates to the Gamestop stock, you would be well advised to steer clear. GME is what’s known as a meme stock and an example of a “[greater fool](https://en.wikipedia.org/wiki/Greater_fool_theory)” asset:
Wikipedia:
>In finance, the greater fool theory suggests that one can sometimes make money through speculation on overvalued assets — items with a purchase price drastically exceeding the intrinsic value — if those assets can later be resold at an even higher price.
>In this context, one “lesser fool” might pay for an overpriced asset, hoping that they can sell it to an even “greater fool” and make a profit. This only works as long as there are enough new “greater fools” willing to pay higher and higher prices for the asset. Eventually, investors can no longer deny that the price is out of touch with reality, at which point a sell-off can cause the price to drop significantly until it is closer to its fair value, which in some cases could be zero. The last “fools” to purchase in on the product in question are then left holding the bag, allowing earlier, lesser fools to make off with the profit.
and:
>A bubble starts when any group of stocks, in this case those associated with the excitement of the Internet, begin to rise. The updraft encourages more people to buy the stocks, which causes more TV and print coverage, which causes even more people to buy, which creates big profits for early Internet stockholders. Successful investors tell you at cocktail parties how easy it is to get rich, which causes the stocks to rise further, which pulls in larger and larger groups of investors. But the whole mechanism is a kind of Ponzi scheme where more and more credulous investors must be found to buy the stock from the earlier investors. Eventually, one runs out of greater fools.
— Burton Malkiel
Stay away from meme stocks. Speculating on individual stocks is like gambling. Speculating on stocks that are being pumped and dumped is even riskier than gambling against random market noise. You might think you’re getting in on the pump side, when you’re actually the dump for early “investors.” Don’t be somebody else’s exit strategy.
In the 2021 GME bubble, people thought they were sticking it to hedge funds and institutional investors. What they were really doing is a lot of ordinary folk who got caught up in the Reddit hype lost a ton of money and transferred their money to a few sharp individuals who got in early enough on the pump and dump and got out before the bubble popped.
If you really want to get into the rabbit hole of GME, checkout [This Is Financial Advice](https://www.youtube.com/watch?v=5pYeoZaoWrA).
Latest Answers