Bill Gates told CNBC that the trading craze traded by Reddit on GameStop and other stocks reminded him to bet on a casino and not invest.
“People enjoy playing. Unfortunately, it’s a zero-sum game,” CNBC billionaire philanthropist Andrew Ross Sorkin told CN Squawk Box on Thursday.
“The idea that you drive a way of valuing, far beyond what is rational, is hard to see socially as a good use of time,” Gates added. “And, you know, people who come in early get very expectant. People who come in late feel sucking.”
Comments from the Microsoft co-founder were issued hours before the House Financial Services Committee hearing on last month’s small GameStop compression. The video game retailer’s shares skyrocketed as retailers rallied to the name, which hedge funds bet heavily on.
GameStop traded below $ 20 per share in early January, before firing up to an intraday high of $ 483 on January 28, an increase of more than 2,300%. Shares traded above $ 46 per share on Thursday.
GameStop had been one of the busiest stocks on Wall Street, and some retailers acknowledged its technical vulnerability to small pressure. Last month it was sent to short-term sellers that Reddit users and online investors were rushing to GameStop, either by buying stocks or buying call options.
Short sellers borrow one-share shares and quickly resell them on the market, intending to buy them later at a lower price. They then return the shares lent and reap the benefits of the difference. When the opposite happens, as with GameStop, shorts try to minimize their losses by buying stocks at higher prices.
Social media, particularly forums like Reddit’s WallStreetBets, proved to be a powerful force during GameStop’s commercial frenzy. Reddit CEO Steve Huffman and Keith Gill, a prominent WallStreetBets user, are due to testify at Thursday’s hearing. They are joined by Robinhood CEO Vlad Tenev and Gabriel Plotkin, who runs the Melvin Capital hedge fund. The bottom was short GameStop during the massive stock period.
Gates expressed concern about the role social media played in the GameStop saga and its possible implications for the U.S. equity market.
“Reddit forums where people have a reason to push something and go out at these high prices, you know, the SEC has to look at it because we don’t think the stock market just plays a casino-like role,” said Gates, the third richest person in the world. “We have restrictions on betting activities.”
Other people acknowledge the highly speculative nature of the GameStop frenzy, but argue that risky trading has long been an element of the market.
“All investors are speculators, whether you own a stock for a millisecond or you own it for 10 years, and the market has to accommodate that,” Kevin O’Leary told CNBC on Wednesday.
“By investing you make and you lose. You make money, you lose money,” added O’Leary, co-founder of O’Shares ETF and investor in the Shark Tank.
Some have said the GameStop craze had populist features, with smaller investors trying to stick it to hedge funds and large Wall Street companies. Gates said that if this was really the goal of individual investors, it would not end well.
“If the general public investor faces hedge funds, over time, hedge funds will go ahead,” Gates said. “I’m sure there will be a lot of stories of people who got caught up in the frenzy, who didn’t really serve any social purpose.”
Disclosure: CNBC owns the exclusive cable rights outside of the “Shark Tank” network, co-hosted by Kevin O’Leary.