Opinion

Will GameStop change the stock game?

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By Lucas Persechino

Social Media Editor

You have probably heard the name GameStop a lot recently. You also might know that something happened with GameStop’s stock, GME. That’s because on Wednesday, Jan. 27, history was made on Wall Street. This time around, the average investor claimed their fortunes in what was a huge loss for hedge funds on Wall Street.

For those who don’t know, GameStop took a huge hit financially as their revenues decreased about 24% in 2020 when the Covid Pandemic reached the US, on top of a 3% decrease in revenues the year before according to Macro Trends. Hedge funds, who are groups of Wall Street investors who pool their money together for use in the stock market, started shorting GameStop (GME) stocks. In other words, making a profit off GME’s steady decline using the stock market. For years, hedge funds have made millions of dollars off shorting the stocks of companies like Blockbuster, Cinemark, and Bed Bath and Beyond according to The Hedge Fund Journal. However, a subreddit account on the popular app Reddit, called “r/wallstreetbets” made some of the biggest hedge funds in Wall Street panic.

Users on the server simply began discussing how unfortunate it was to see their beloved GameStop on the verge of bankruptcy, and called for everyone to pump money into the GME.

Users on the server simply began discussing how unfortunate it was to see their beloved GameStop on the verge of bankruptcy, and called for everyone to pump money into the GME stock. After the trend started to pick up, the GME stock price went from $37.37 Jan. 20 to $354.83 on Jan 27. This led to an anonymous user posting “yolo” as he put $50,000 into GME and turned it into $47.9 million. The surge of GME’s stock price caused a “short squeeze” which is basically a huge loss for hedge funds that shorted the stock. Because the price of the stock was going up rapidly, Hedge funds no longer made money off their prediction of the stock price staying low. In other words, by using social media to get a bunch of people together and invest in one company, average investors beat hedge funds at their own game. Melvin Capital, a hedge fund who shorted GameStop, was at a 53% loss in January following the GME surge according to cnbc.com.

Wall Street did not take the loss so well, and reasonably so. This led Robinhood, a brokerage app, to cease all sales of GME stocks in a statement that read “In light of volatility we’re restricting transactions for certain securities to positions” according to cnbc.com. Robinhood’s actions sparked outrage all over social media, especially twitter, regarding not being able to buy into GME.

This led to Senator Alexandria Ocasio-Cortez (AOC) condemning their actions, and senator Ted Cruz agreeing to the statement in the same twitter thread. AOC tweeted “We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.”

Ted Cruz retweeted AOC saying, “Fully agree.” The Twitter thread is something many people thought they would never see as AOC and Ted Cruz are on two opposite spectrums of American Politics.

After the situation calmed down, the question still remains: what does this mean for the future of investing? In the age of social media, it could mean a huge change in how people invest. Does GameStop’s example prove to be a bright future for the average investor? I certainly think so. After what happened with GME, the stock prices of AMC went from $3.29 on Jan. 20 to $20.34 on Jan. 27, and Black Berry’s stock price went from $13.23 on Jan. 20 to $20.25 on Jan 27. Neither AMC or Black Berry are comparable to GME, but all are part of the same trend. All three of these companies were in the top ten of most shorted stocks. I believe that people caught on to short squeezing hedge funds to make a profit, using social media. I think GME set an example of coming together on social media and driving up the stock price of companies that hedge funds feast on, thus changing the way we invest.

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