Billionaire entrepreneur Mark Cuban told CNBC on Tuesday that he believes the Reddit traders who helped spark the GameStop short squeeze 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 “Squawk Alley.” “You get out there and create more buyers for your stock and the stock price goes up and that’s exactly what’s happening here, except it’s just WallStreetBets that’s doing the ‘getting loud.'”
Cuban’s comments came as GameStop shares were plunging about 50% Tuesday to around $111 each, one day after losing nearly a third of its value.
The videogame retailer’s stock — which rallied 400% last week, reaching an all-time high of $483 per share at one stage — started soaring in response to a short squeeze that happened when online traders on sites like Reddit’s WallStreetBets forum poured into the heavily bet-against stock.
Cuban, who made billions of dollars during the dot-com boom, said he believes those online investors have gained valuable knowledge from the short squeeze, as well 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 think now that they’ve recognized their power and now that they’ve learned some lessons, we’re going to get more of it, not less 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 tail between their legs and they’re never going to do this again.”
Short selling is a strategy in which an investor borrows shares of a company and then promptly sells them, expecting that the price will decline in the future. The short seller buys back the stock at its lower price and gives back the borrowed shares, profiting off the difference.
When the opposite happens, like when online traders rushed into GameStop, hedge funds and other investors who had shorted the stock may try minimizing their losses by buying shares at the current higher price. Both groups of investors purchasing the stock adds to the upward momentum.
Disclosure: CNBC owns the exclusive off-network cable rights to “Shark Tank,” on which Mark Cuban is a co-host.
