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The question on everyone’s mind that every investor is pondering over is: how did the struggling video game retailer, GameStop Mania, make a solid turnaround overnight, making it Wall Street’s hottest stock? Well, we cannot deny the fact that everyone loves a good unexpected success story, especially when it involves plucky underdogs sticking it to “The Man.” And this is exactly what happened. For most people, this was a chance to have a good laugh, but to most, it was a chance for them to impact change; you could call it a generational fight.
Before we dig in, let’s get into the basics. What is GameStop Corporation?
Game Stop Corporation is an American specialty retailer that uses e-commerce to provide video games, consumer electronics, and merchandise products. It’s the largest U.S retailer and sells used and new game equipment. A large population of young people grew up with GameStop mania hence playing a huge role in the childhood memories of so many. The video game chain, GameStop has more than 5,000 stores that allow its customers to trade-in or sell their consoles, games as well as gaming accessories. The recent development in GameStop mania peaked the public’s interest after its stocks rose in a short time resulting in the exit of short-selling hedge funds. The American video game retailer struggled to stay afloat for years, and the CoronaVirus pandemic worsened the situation. Before this significant turnaround, the company had closed 783 stores in a span of two years.
So what exactly happened?
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The company’s share price increased dramatically after Reddit investors decided to stick a finger to the rich after institutional investors were looking into short-selling the company. To explain short selling simply, hedge funds borrowed GameStop shares at a certain set price in hopes that by the time they have to return the stocks, the price will be of lower value. If the stock value decreased as predicted, these hedge funds would have made significant profits leaving the corporation high and dry. But Reddit stock market players decided they did not want to let that happen. They then moved to swarm the stock by encouraging each other to keep purchasing as the price rose. Word on the financial street is that the corporation’s market value rose from about $300 million to $20 billion, with one share selling at a price of $325 from the original $20 a share.
Demystifying the GameStop phenomenon
Wall Street commentators refer to the sudden turnaround of the company’s share price as the GameStop phenomenon. The company was not doing so well, and at the time, a number of hedge funds had placed bets that it would lose value. However, a huge number of people who discuss stocks, shares, and investments on Reddit swapped tips and then purchased shares in GameStop. This caused an increase in the demand for the company’s share price. But that’s not really what the phenomenon is about. It’s more so about the revolt against Wall Street. Retail investors who were rooting for the downfall of GameStop Corporation were faced with quite the shock as they watched the stocks rise. The phenomenon is about how the Reddit investors formed an uprising against the rich on Wall Street who are used to treating the stock market as their own casino. It’s evident that they never take into consideration how the companies, their consumers, workers, and the community at large are affected by their risky gambling.
How Reddit contributed to the GameStop mania stocks
The tug of war between Reddit’s day traders and hedge fund traders on Wall Street is the main factor behind the rising stocks of Game mania. A meme stock that was shared on Reddit sparked a fire among WallStreetBets, one of the largest online forums on the platform. The meme was a depiction of how hedge funds were heavily short-selling the stock. Traders took to Reddit to encourage the populist agenda, with a majority of them echoing the message that this was an opposition to make Wallstreet pay for the consequences of their actions, such as the loss of jobs and people’s homes, for the decrease in the minimum wage while they continue to get rich and most of all for the recession they caused. What a way to get back at the rich for all the inequality and injustice they’ve encouraged and condoned! One Reddit member spoke out and expressed that they are proud to be a part of this mark in history.
Was it all real?
To the surprise of many, the GameStop mania severely tested the stock market as they watched the price scale up to unexpected heights. The mania went global. The power shift on Wall Street was definitely real and left professional traders reeling from their losses. It will go down in history that an amorphous group of Reddit investors upended the market in a bid to humiliate hedge fund investors who wanted to watch GameStop corp fall to the ground. The revolution was fueled by a group of people who wanted to give power back to the people. The internet managed to shake things up and exclude Wall Street from a joke everyone was laughing at. Tragic or inspiring?
Conclusion
The GameStop mania has provided an opportunity to create fair and efficient equity markets. Through this event, other small struggling companies got to make similar moves. This shift in the stock market will hopefully result in better choices made by investors on Wall Street who are used to doing things their way, not worrying about their consequences. Another takeaway is the evidence that with the help of social media, like-minded people can foster change even when faced with opposition from large-scale opponents.
