GameStop’s stock price is on the rise, but it’s likely not what you think might cause such a hike: meme-ing a stock to thwart capitalistic short-sellers.
It’s no secret that a lot of businesses didn’t fare well due to the pandemic. GameStop was no exception. Having to shift their business to focus on online sales, the once-heralded video game store is losing money fast and is looking at closing hundreds of locations by the end of the year.
Now, the stock incline of this deflated retail giant is beginning to turn heads.
It all started with a plan. There is a subreddit dedicated to amateur stock investors and generally meme-ing the stock market called /r/wallstreetbets (NSFW), who found out that GameStop was being intentionally kept low by hedge funds and institutional investors, where 140% of all the stock was being short-sold.
GameStop was being bet against, assuming the stock would continue to fall and basically causing those involved to benefit from the process. It turns out that Ryan Cohen – yes, the creator of Chewy, the pet food retailer – made a huge investment in the retailer and began lobbying to have Gamestop move the majority of its business online, akin to Amazon.
A post made in the subreddit told these details to several members, creating a ‘Robin Hood’ situation that not only inspired these investors to want to cause these greedy fiends to lose money in the process but perhaps squeeze it out of reach and ride the stock all the way to Valhalla.
These armchair investors began buying into the stock quite heavily. At first, it was single digits, but it ramped up quickly from there and ended up valued at $228 in before-hours trading. Their plan worked, as the short-sellers could no longer short sell the stock, as it would cost them interest based on the value of the stock relative to the bets they were making. This, obviously, isn’t sustainable and the ruse was up.
So in turn, those betting on the losing horse lost billions of dollars. Not learning their lesson the first time and thinking that lightning wouldn’t strike twice, the capitalists began shorting the stock yet again.
But, with an organized effort, the Redditors are mostly just holding onto their stock. This is causing the stock to keep the price at its inflated amount or perhaps pushing it even further onwards and upwards.
Where is the stock going? No one knows. Some are trying to ride the stock as long as they can, hoping to make it rich in the process, while others are dipping out, having done their part. This whole process could be considered market manipulation, but it would be hard to pinpoint individual blame for it. These, as I suggested, are armchair investors doing it for the “lulz.”
This war doesn’t seem to be going anywhere, as those dipping out of the race to the top are suddenly replaced by those buying in.
It’s a battle between fresh investors and established players of the market, and right now, GameStop seems to be benefiting from this, albeit artificial, financial interest.
This absolutely breaks everything taught on how to invest in the stock market, but perhaps the rules are being rewritten by the next generation of investors.