By now, many of you may have heard murmurs or heated discussions about a certain video game retailer. GameStop has been creeping up in conversations, and you might be wondering what the stir is all about. A quick Google search might leave one with far more questions than answers. As somebody who has been following this story closely since before it blew up, and even has a few shares in GameStop stock myself, I’d like to take this opportunity to try to explain just what in the world is going on and why you should care.
The story begins on a previously marginal subreddit called Wallstreetbets, a place for stock traders to gather and take risky, exciting positions in the stock market for potential gain and entertainment. A certain user made a bold move back in mid 2019 to buy 50,000 shares of GameStop stock, which cost roughly five dollars at the time. GameStop, a physical video game retailer that has been in decline since gaming has moved primarily online, would not normally be a prime target for investment. But this, in addition to Chewy co-founder Ryan Cohen buying up 15% of the company and getting on the board, plus promises to move to a more online model, did slightly turn things around in GameStops favor.
GameStop’s decline attracted another crowd: hedge funds, or the big suits on Wall Street, to put it in simple turns. Because GameStop seemed to be in perpetual decline, numerous hedge funds started to short GameStop stock relentlessly. To clarify, shorting is the act of borrowing a stock and selling it, with the promise to buy it back later to give back to the people you borrowed from. Obviously, if a stock goes down in between buying and selling it, you’ve made money from the initial sale because you bought it back for less. These hedge funds were shorting GameStop to the point where 140% of it’s worth was tied up in short positions. This is completely insane, and the next highest were only at 60%.
With this publicly available information, Wallstreetbets came together to start purchasing GameStop stock en masse, thus driving the price up,and forcing the Wall Street suits to lose money on their short positions. While this is a basic view of what happened initially, that is not necessarily the end goal. You see, if the people buying these stocks simply buy and continue to hold them, they, in theory, can set the price that the hedge funds have to buy back at. This can create what’s called a “short squeeze,” where the price skyrockets to astronomical levels. A similar thing happened during 2008 with Volkswagen stock, and if you’d like to see a visualization of what this looks like, you can find one online.
At the moment, people are still locked in a back and forth with Wall Street over GameStop. Many media outlets have been trying to push various narratives to deflect, put blame on, and downplay what is going on. These include falsely labeling the people investing as white supremacists, claiming that they’ve moved onto silver, or saying that the chaos is over and everything is back to normal, and the evil retail investors (common people) have been quelled by the benevolent hedge funds restoring order to the market. These stories, along with blatant market manipulation and other shady tactics, show both the magnitude of what’s going on and the importance of it. This is a historic moment in the stock market, and the walls of the billionaires fortress are being battered by the common people. People from both sides of the political divide, from Alexandria Ocasio-Cortez to Ted Cruz, have expressed similar sentiments that what is going on is despicable from the end of the Hedge Funds. At the moment, it is difficult to say how this will all pan out, but at the very least, I can say that these diamond hands are holding till we go to the moon.
