GameStop and Silver: Failure in Exit Strategy


Posters on the Wallstreetbets group on the Reddit platform helped shares in GameStop soar.

Photo by mundissima /

The events of the past month have created something of a paradigm shift in financial markets. Les Nemethy looks at what caused the surge in prices of GameStop, silver, etc., why a lack of an exit strategy caused the surges to fizzle out and what might be the positive effects or lessons learned from this phenomenon?

Let me describe events leading up to the surge, (which I acknowledge is oversimplified).

One might start by ascribing responsibility to the “loose money” policies of central banks and helicopter money from governments. Excess liquidity provided a fertile environment.

The trigger was provided by social media activities of Wallstreetbets, a subgroup of the Reddit internet platform; the later silver surge was driven mostly via Twitter. The coordination of a large number of retail investors via social media to move markets to this extent was unprecedented and revolutionary.

Retail investors had cleverly discovered a highly unstable situation in GameStop ownership: short sellers had sold 140% of the shares, many of them naked shorts (e.g. where they sold shares they did not own). 

This made short sellers extremely vulnerable, as they tried to buy shares to eventually cover their positions; this served to further drive up prices. In theory, prices could have moved to infinity. GameStop shares, which a month prior had been trading in single digits, reached USD 347 on January 27, 2021, at least a tenfold multiple of what the shares were really worth.  

The Collapse

Share prices collapsed shortly thereafter, reaching USD 54.50 on February 4. Why did the surge fizzled out? Ever since my 2011 book, Business Exit Planning, I admit to a bias of looking at investments from the perspective of an exit strategy.

In the case of GameStop, there is not a shred of evidence that the retail investors had any exit strategy. Emotion (either greed or anger at the financial establishment) is not a strategy. Some large investors who jumped on the bandwagon may have also been guilty of “pump and dump” techniques, further charging the emotional atmosphere. 

Any student of exit strategies would predict that the way to make money in these kinds of situations would be “First In, First Out” (FIFO).  The earlier you invest, and the earlier you exit (presumably just before or after peak price was reached), the more money you made. It was fully predictable that once prices started to decline, a total collapse was inevitable. 

If there was no leader, no coordination on the way down, everyone would simultaneously run for the exits. The surge on GameStop lost its focus when retail investors started targeting other shares like AMC, and even the silver market (vastly larger than the capitalization of GameStop, with much less shorting, hence driving silver to USD 100, a much talked about objective on Twitter, was a pipe dream).

When is the best time to engage in exit planning? Before you buy the asset you are considering. Ironically, if a large hedge fund had decided to squeeze GameStop shorts,  chances of success would have been higher. A single buyer could have maintained prices, forcing naked shorts to accept their terms.

Lessons learned?

First and foremost, laws on short-selling should be enforced. One of the reasons the Securities and Exchange Commission was created back in the 1930s was precisely to stop naked short selling, that had been rampant in the ’20s. These laws are on the books; U.S. regulatory authorities should be held accountable for not enforcing them. Doing so could help to prevent bubbles in future.

Second, hedge funds may be less inclined to do naked short selling, or any type of  short-selling in future, as the whole equation of risk pertaining to short selling has changed, given the new found power of retail investors. We should not expect a complete cessation of short-selling, but perhaps a moderation.

Third, events serve as a warning to retail investors to invest less out of emotion and to be more rational, with attention to strategy and underlying value. As Warren Buffet has said, you shouldn’t own a stock for 10 minutes if you aren’t prepared to own it for 10 years. 

Fourth, events of the past month have created a new awareness of how manipulated markets are; not just short sellers manipulating prices of individual company shares down, but that in the case of silver and bullion markets there seems to be a pervasive manipulation of markets, as pointed out in a recent article on

Buyers of physical silver did not get nearly as hurt as buyers of GameStop. Whereas most GameStop investors went way above intrinsic value, arguably silver was below intrinsic value, even at the highest recent values. I plan to own silver for 10 years.

As the saying goes, it’s a shame to waste a good crisis. Investors and regulators can each learn lessons and draw conclusions that should improve the investing experience and make markets better in future.


Les Nemethy is CEO of Euro-Phoenix Financial Advisers Ltd. (, a Central European corporate finance firm. A former World Banker, he is author of Business Exit Planning ( and a former president of the American Chamber of Commerce in Hungary.

This article was first published in the Budapest Business Journal print issue of February 12, 2021.

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