GameStop And The Redditors: My Take on the Stock Market Insanity
As a lifelong player of video games, GameStop means a lot to me, and I’ve personally had plenty of good experiences there. Seeing them struggle in recent months due to increasing digital game sales and other factors, has been rough to watch, and the global pandemic hasn’t made things easier for the retailer.
Then one day, completely out of nowhere, GameStop is making headlines on all the major news outlets because their stock prices suddenly skyrocketed! We eventually learned that this sudden spike was caused by a group of amateur investors on Reddit as a way of sticking it to ‘the man,’ aka Wall Street.
To quickly summarize what happened, the large hedge funds were “shorting” stocks in struggling companies such as GameStop, AMC Entertainment and others. They borrowed shares from a broker, sold them and then bought them back, returning the shares to the broker when the price fell. Basically, the hedge funds count on a company failing and make money when the stock prices plummet. However, the people in this Reddit group bought shares in struggling companies, like GameStop and more recently silver, causing the stock prices jump up rather than down, and in turn, the hedge funds lost money.
Before this situation, I didn’t really think much about the stock market. Sure, I would occasionally see reports about the DOW Jones going up or down, but when imagine Wall Street, I mostly think of a place where wealthy men in suits go make more money. I’m sure the reality of it is a bit more complicated, but I think that perception of stockbrokers and hedge funds, as well as the growing wealth inequality in America, has played a part in this Reddit-fueled frenzy.
If everything that’s happened has made you want to start investing in the stock market, that’s fine. Before you do, you might want to talk to your credit union first. Getting some advice and a better understanding of how far you want your future investments to go may save you in the long run.
As for GameStop and all the other companies affected by the sudden change in their stock market price, their fates remain very much up in the air. What I can say is that this will be an experience consumers and credit unions – and hedge funds – can learn from.
