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• VOX GAMESTOP FULL

For at least some of the traders betting on GameStop, hurting short sellers is not only a bonus, but the goal. Economists have since argued that short selling was not the principal culprit, but the sentiment persists. This antagonism may be fueled in part by the popular conception that short selling caused or contributed to the 2008 recession. That said, many GameStop investors have expressed disdain for those who bet against companies. While the mechanics of this could be tricky, it’s not unthinkable that in the future large number of small investors could try to push down the price of smaller, less liquid stocks for extended periods by banding together. This episode has created a new risk for investors to consider before opening a concentrated position in one company’s stock: the risk that a coordinated group of investors could decide to do the opposite, and drive a company’s stock down, rather than up. In this case, we saw the unexpected operating in the opposite direction as GameStop’s stock skyrocketed. Unforeseen events can tank a stock, temporarily or permanently. Boeing investors could not have anticipated the pair of deadly crashes that grounded the 737 MAX and undercut public trust in a well-established company. For example, cruise line investors could not have anticipated a deadly pandemic. A company’s stock can suddenly crash while the rest of the market is unaffected due to business-specific risks that are difficult to anticipate. As far as we know, no one was acting fraudulently or with any nonpublic knowledge.Īnyone who holds a concentrated stock position is vulnerable to the unexpected. While some have speculated that the GameStop incident might trigger regulatory scrutiny about potential market manipulation, that outcome seems unlikely. Instead, GameStop investors are actively banding together to try to drive one stock’s price up by creating an overwhelming level of demand, effectively breaking the typical market environment where buyers and sellers are matched together to agree on an appropriate price. This is different than a classic bubble, where optimistic individuals lose sight of the risks involved and invest with the assumption that they can’t lose. Observers have debated the extent to which this motivation was primary or secondary, but it is clear it helped drive the trend to some degree. A large group of retail investors determined that, by acting together to drive up the value of GameStop’s stock, they could hurt hedge funds and other institutional investors that had shorted it. GameStop caught the attention of retail traders, especially on Reddit, not only because of positive news about the company itself, but because so many market professionals had bet against it. What is less clear is whether the majority of these traders sincerely hoped to profit or whether, as Emily Stewart put it for Vox, “they’re just ‘YOLO-ing’ themselves across the market.” In GameStop’s case, it is clear that much of the momentum began in the subreddit WallStreetBets. Many of these investors took to Reddit to discuss their approaches. While some bystanders had recently seen reasons for optimism – such as new board members and reports of a shift to focus more fully on e-commerce – none of that news was the major engine for the spike in GameStop’s stock price.Īs many people, including me, observed last year, the COVID-19 pandemic coincided with an increase in trading from individual investors. Second, video game fans increasingly buy their games as direct downloads rather than as physical discs or cartridges. First, foot traffic to its brick-and-mortar stores, long trailing off, suffered further during the pandemic.

28.įor some time, the video game retailer has been struggling with dual realities. 27 and fell to under $200 at the close on Jan. GameStop’s stock reached almost $350 at the market close on Jan. 25, the price was so volatile the New York Stock Exchange briefly halted trading nine times over the course of the day.

Late last month, GameStop made headlines as its stock’s value shot up, the beginning of days of remarkable volatility.

VOX GAMESTOP FULL

Unless you have taken a full week off from the news, by now you have encountered someone trying to explain what is going on with GameStop. Photo by Flickr user Mike Mozart, licensed under CC BY