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Bill Gates Likens GameStop Frenzy to Gambling, Says Such Speculation Has No Societal Purpose

Adam Galica | CNBC
  • "The people who get in it early get a windfall. The people who get in late feel like suckers," Bill Gates told CNBC.
  • "The idea that you drive a valuation way, way beyond what is rational, it's hard to see that societally as a good use of time," the billionaire philanthropist added.
  • Gates' comments were aired ahead of the House Financial Services Committee's hearing on last month's GameStop short squeeze.

Bill Gates told CNBC the Reddit-fueled trading mania in GameStop and other stocks was reminiscent of betting at a casino and not investing.

"People enjoy gambling. Sadly, it's a zero-sum game," the billionaire philanthropist told CNBC's Andrew Ross Sorkin in an interview that aired Thursday on "Squawk Box."

"The idea that you drive a valuation way, way beyond what is rational, it's hard to see that societally as a good use of time," Gates added. "And, you know, the people who get in it early get a windfall. The people who get in late feel like suckers."

The Microsoft co-founder's comments were broadcast hours before the House Financial Services Committee's hearing on last month's GameStop short squeeze. The video-game retailer's stock skyrocketed as retail traders piled into the name, which was heavily bet against by hedge funds.

GameStop traded below $20 per share in early January, before soaring to an intraday high of $483 on Jan. 28 — a surge of more than 2,300%. The stock traded above $46 per share on Thursday.

GameStop had been one of the most bet-against stocks on Wall Street, and some retail traders recognized its technical vulnerability to a short squeeze. Short sellers were sent scrambling last month as Reddit users and online investors rushed into GameStop by either buying shares outright or purchasing call options.

Short sellers borrow shares of a stock and then promptly sell them back into the market, with the intention of buying back them later at a lower price. Then, they return the borrowed shares and profit off the difference. When the opposite happens, like with GameStop, shorts try minimizing their losses by purchasing the stock back at higher prices.

Social media, particularly forums like Reddit's WallStreetBets, proved to be a powerful force during the GameStop trading frenzy. Reddit CEO Steve Huffman and Keith Gill, a prominent WallStreetBets user, are set to testify at Thursday's hearing. Joining them are Robinhood CEO Vlad Tenev and Gabriel Plotkin, who runs the hedge fund Melvin Capital. The fund was short GameStop during the stock's massive runup.

Gates expressed concern about the role social media played in the GameStop saga and its potential implications for the U.S. equity market.

"Reddit forums where people have a reason to kind of push something and get out at those high prices, you know, the SEC has got to look at this because we don't think of the stock market as just performing a casino-like role," said Gates, the third-wealthiest person in the world. "We have restrictions on gambling activities."

Other people acknowledge the highly speculative nature of the GameStop frenzy but contend that risky trading has long been a fixture of the market.

"Every investor is a speculator, whether you hold a stock for a millisecond or whether you own it for 10 years, and the market has to accommodate that," Kevin O'Leary told CNBC on Wednesday.

"In investing you win and you lose. You make money, you lose money," added O'Leary, co-founder of O'Shares ETFs and a "Shark Tank" investor.

Some have said the GameStop craze carried populist characteristics, with smaller investors trying to stick it to hedge funds and big Wall Street firms. Gates said if that really were the aim of individual investors, it will not end well.

"If the general public investor is pitted against the hedge funds, over time, the hedge funds will come out ahead," said Gates. "I'm sure there'll be lots of stories of people who got caught up in the frenzy, which really served no societal purpose."

Disclosure: CNBC owns the exclusive off-network cable rights to ″Shark Tank," on which Kevin O'Leary is a co-host.

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