If you’ve been paying attention to finance news recently, you might have caught wind of GameStop’s stock just exploding in a short period of time at the hands of some crazy Redditors on /r/wallstreetbets.
I’m going take some time and give you a brief rundown on what happened to GameStop’s stock and what it could mean for the gaming retailer. I’m going to try to simplify this the best I can, but I recommend rereading this and doing your research on the topic because this is a complicated topic (I certainly did).
What Happened?
On Monday January 25, the struggling retailer GameStop (NYSE: GME +134.84%) saw their stock skyrocket astronomically when the Reddit community r/wallstreetbets (WSB) pushed the shares up almost three times its average over the course of the past several months. The thing is many Wall Street traders were expecting GameStop’s stock to fall even further and make a ton of money from said stock failing; this whole process of making money from a stock failing is known as short selling.
"What's happening with GameStop is a pushback against the establishment in a really important way," @chamath says. Anyone who is dismissive should read the forums, he adds. https://t.co/Tlk0Zy5hFa pic.twitter.com/39jxvGhdyY
— CNBC (@CNBC) January 28, 2021
But because WSB bought all of those GameStop stocks and drove artificial demand up in a short period of time, all those short sellers, hedge funds, and investors lost $5 billion total.
WSB vs Melvin Capital
As to the reason why a bunch of retail investors would join forces and buy GameStop, it seems to be an effort to simply mess with Wall Street and short selling investors, namely Melvin Capital. Melvin Capital is a hedge fund that put a lot of money into GameStop failing, so the users at WSB saw an opportunity to enact a kind of stock rebellion, and some people think that this rebellion was done with malicious intent, but that isn’t the case.
WSB member Lucas Severyn said to Yahoo!Finance that “there’s no targeting going on – WSB is far less organized than all the articles making it out to be… From time to time, WSB gets obsessed with some stock, now it’s GME, and for the first time ever this stock just keeps giving.”
Social Media Cheers
The news that hedge funds were dealt a major blow to their bottom line was cheered upon by people on social media. Social media star and sometimes Tesla CEO Elon Musk went on Twitter to proclaim “Gamestonk!!” and linked to WSB, all of which added further fuel to the stock’s meteoric rise.
Gamestonk!! https://t.co/RZtkDzAewJ
— Elon Musk (@elonmusk) January 26, 2021
A moderator, BASWE1, on the WSB subreddit said, “It was a meme stock that really blew up,” although the party will eventually be over as noted by Joseph Feldman, analyst for the Telsey Advisory Group, when he said “We believe the current share price and valuation levels are not sustainable, and we expect the shares to return to a more normal/fair valuation driven by the fundamentals.
Now What?
WSB has set their eyes on other stocks to boost up: AMC (NYSE: AMC +310.21%) and BlackBerry (NYSE: BB +32.66%). AMC and BlackBerry have already seen their stocks grow exponentially. On January 27, AMC’s stock soared 300% at the open, the highest it’s ever been since 2018 and the hashtag #SaveAMC trending on Twitter. BlackBerry hasn’t seen those growth rates yet.
None of this is meant to be financial advise. I STRONGLY recommend you talk to a financial advisor, especially when you see news like this and you starting thinking of investing.
So, what are your thoughts on all this? I’d love to know.
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