How Reddit Forced GameStop Stocks Up 685 Per Cent For The Memes [Updated]

How Reddit Forced GameStop Stocks Up 685 Per Cent For The Memes [Updated]
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GameStop shares are going to the moon, largely thanks to the power of Reddit and a ‘meme war’ waged with investors. The game retailer’s stock is up 505 per cent this year, according to the Los Angeles Times, sitting at $US132 after previously trading around $US2-4. So, how did wily Redditors take a retailer that closed hundreds of stores months ago into the stratosphere?

The furore over GameStop kicked off on January 11 when GameStop Corp. (the parent company of EB Games in Australia) announced Chewy Inc. co-founder Ryan Cohen would join its board. Cohen’s investment firm reportedly had nearly a 10 per cent stake in GameStop already, but he wanted to push the company further into the digital sales market. A lack of confidence in Cohen’s tactics and views led stock commenter Citron Research to predict a massive price drop for the company.

Reddit board r/wallstreetbets reportedly took this news in its stride and began a counter-argument that GameStop’s shares were stronger than ever, leading to the growth of an alternate narrative which put inflated faith in the strength of GameStop’s shares.

Naturally the jokes blew out of proportion, and what followed was a buying frenzy that drove the price of GameStop’s shares through the roof as major investors took them as gospel. This saw GameStop’s share prices increase massively. It also meant major losses for short sellers, and a market phenomenon known commonly as a ‘short squeeze’.

In layman’s terms, a short squeeze is a situation where stocks rise rapidly in price beyond the natural factors of the market. In this case, the short squeeze came about thanks to the loud and pervasive commentary from Reddit and Twitter which insisted GameStop was doing fantastically.

It meant anyone who’d bought ‘short stocks’ in the company was suddenly in dire waters.

Short selling is a process where investors purchase or ‘borrow’ stocks from other investors betting they’ll fall lower. Short stock investors will then buy these stocks back at a lower price and give it back to the original investor, leading to a small monetary payoff from this endeavour. It’s a risky business because it’s tough to predict when prices will be at their lowest and therefore return the highest profit.

On Saturday, the short stock trading over GameStop reached such heights the market was forced to briefly pause while it accounted for the sudden interest. This came in all forms: from Redditors having a laugh, legitimate personal investors, but also larger investment firms who’d heard the buzz and wanted a piece of the pie.

While GameStop was previously considered a relatively stable investment for short stockists, the ‘GameStonk’ rush caught short stock investors flat-footed as they became unable to make a profit on their investments. According to the Los Angeles Time, these losses meant hedge fund Melvin Capital Management had to seek a near-$US3 billion ($3.8 billion) bailout this week. Business Insider further reported over $US5 billion ($6.4 billion) had been lost by short-sellers in the squeeze.

As of writing, GameStop’s share price continues to trend upward, with it currently sitting at $US147.98 ($190.85), a 92.61% increase from its previous close. While it does appear to be stabilising after a massive period of inflation, the stable growth is wildly impressive.

In a meme war between Reddit and investors you wouldn’t expect Reddit to come out on top, but here we are, ogling the incredible results of what began as a joke on the internet.

While it’s likely prices will once again plummet, it does raise interesting questions about the volatility of the international share market. Technically, this is a repeatable incident. We can only hope everyone will learn from this experience and never underestimate how powerful the internet can be in the future.

Update 9:04 am AEDT 28/1/21:

As of Thursday morning, GameStop shares have continued to soar, experiencing exponential growth as news of the Reddit-led takeover hit the mainstream press. They now sit at $US347.51 ($453.38), an additional 134.84 per cent increase on the previous day’s close.

The continued growth forced the White House to comment on the situation, with spokeswoman Jen Psaki stating the situation was being closely monitored. It also led to Melvin Capital ‘closing out’ its short position in GameStop due to massive losses, meaning it will no longer invest in the company.

As interest mounts, so does the share price. GameStop is now charting at a 685 per cent increase in January alone, according to CNBC. The rate is currently very unpredictable and while a crash is likely on the way, it’s anyone’s guess when the share price will actually slow down.

For now, it looks like ‘up’ is the only direction GameStop knows.

Update #2, 11:10am AEDT: Tensions between Wall Street and retail investors are likely to escalate, with Discord banning the Wall Street Bets server for “hateful and discriminatory content after repeated warnings” over “the past few months”.

The official subreddit has also been set to private, with a note saying the moderators “unable to ensure Reddit’s content policy and the WSB rules are enforceable without a technology platform that can support automation of this enforcement”.

Comments

  • Fantastic.

    And some articles and comments I’ve seen elsewhere basically crying about these Wall Street investors being slammed, and how the Reddit memers are acting like children and should respect the big guys are absolutely delicious.

        • Ah so occupy removed some fees. Meanwhile, WSB managed to bring several hedge funds to the brink of bankruptcy and made wall street mad.

          hahahhahaha

          • Help me out here. How has moving a few billion dollars from some stupidly rich guys to some different stupidly rich guys achieved anything? That is other than, as you say, making a few stock traders mad for the lols.

      • I mean, seriously, the mods are claiming that Occupy Wall Street was somehow about protecting small investors and allowing them to have more direct influence on the market? ROFL

        Half the registered users probably are the 1%. After all, they clearly have enough disposable income to move the price of one stock substantially over several days just for the lols.

        • They’re using their $600 stimulus checks and when you multiply that by 2.5 million members? You’re dealing with a theoretical 1.5 billion in money moving around. Not to say all of them are in that boat, but from that metric the entire subreddit has a huge amount of money to move around. The hedgefunds should be scared.

        • ” Half the registered users probably are the 1%. After all, they clearly have enough disposable income to move the price of one stock substantially over several days just for the lols. ”

          Do you understand how stock trading works? Do you even know what apps like robin hood are?

          Better question, Do you even understand the entire situation at all?

          • That’s a lot of substanceless criticism, as is typical of your high quality contributions to this website, but yeah. r/wallstreetbets is a reddit for trading stocks, not for blowing your stimulus cheques. It’s been around since 2012.

            The initial WSB stake in GameStop was a $50k position in the stock taken by DeepFuckingValue. Pretty much all the regular forum users who have screenshotted their GME buys show their initial stake in the range of $3-$6k, not $600.

            Users of the subreddit routinely write posts describing buys in the tens of thousands of dollars. They’re stock trading cowboys and GameStop is only a fraction of their plays, notwithstanding the missteps of a few kids who have lurked for a bit until they thought they had a clue then done their dough on something stupid, like the kid in 2019 who turned $2k into a $50k debt.

            Of course, it’s true that a bunch of dipshits have now blown their stimulus cheques by jumping on late to the bandwagon, effectively subsiding the profits of the original WSB players who have now largely taken their profits and sold out. But we were talking about WSB, not late to the bandwagon $600 dipshits who only learned about the entire play from reading Kotaku.

          • You seem overly mad that people are doing a better job fucking over wallstreet than you ever could angora.

            It’s alright, one day your activism might actually achieve something.

          • Can we please discuss this a bit more rationally? There’s no need for this level of aggression. Cheers!

          • Gotta agree with @djbear. Cry more. A bunch of morons on Reddit/4channers have done more to fuck over the wealthy elite than any left or right wingers or their collective movements have managed in the last century.

            What’s the tagline? Power to the players? That applies to more than just hedgefunds as it turns out~

  • The thing is, the hedge funds and the venture capitalists generally end up winning in the end. The bail-outs only came because there is a secondary plan leveraged against this that will more than likely make them more money and the ones who have spunked their money against the wall for the lols will still get burnt. Managed funds, sophisticated investors and most brokers have been cleaning up over the course of the pandemic thanks to the naivety of the influx of amateurs. The number of investors that lose out to the index over the long term is significant and I can tell you it’s not brokers personal accounts, sophisticated investors or instos that do. Without a complicated investment plan with contingency after contingency and enough access to capital to back it up it’s always about time in the market rather than timing the market. Blah de blah, personal opinion and not that of my employer and this is not advice but if it is able to be interpreted as such it is general at best and has not taken your personal circumstances into account.

    • The bandwagon is well and truly off and running, but a hell of a lot of nerds who should know better are about to lose their money. Existing stock holders, on the other hand, are quietly dumping into the bubble and cleaning up.

    • It’s that whole “It has worked this way forever so it doesn’t need to change!” attitude that is usually sported by assholes who are personally benefiting from how things are. Even if the ways things are is absolutely fucking exploitative and in some cases even straight up illegal.

      They don’t want anyone to rock the boat… The memers capsizing and sinking it makes it all the more hilarious.

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