Given the monstrous amounts of money at play, several large institutional investors-rival hedge funds, private-equity firms, billionaire tourist dollars-seem to have jumped in as well, scrambling the most simplistic David-versus-Goliath narratives.Īnd America’s investor underdogs might already have lost the war as the stock price ticks down. This perfect storm was created by the collision of a tantalizing morality play (Reddit Degenerates versus Wall Street Suits) and an age of commission-free trades on popular platforms such as Robinhood, which have converted the raw material of pandemic boredom into a juggernaut of speculation. On most days this week, GameStop was the most exchanged equity in the world, with $20 billion of trading volume daily. Ordinary investors with FOMO have piled into the stock. One hedge fund, Melvin Capital Management, has lost at least $2 billion, while Roaring Kitty is now estimated to have made more than $13 million on his GameStop investment.Įncasing all of this is the investor craze of the past few days, as Reddit’s GameStop scheme went viral. This is called a “short squeeze,” and it seems to have served at least two purposes for the Reddit investors: sticking it to hedge funds and getting a little rich. Over the course of several months, they spelled out a detailed plan to buy up GameStop’s stock and push up the price, punishing the hedge funds and forcing them to cover their position by rushing to buy back shares, which would push up the stock’s value even more. A band of Reddit users, led by a trader who goes by the YouTube name “Roaring Kitty,” had for months been eyeing GameStop as a tasty investment. That’s because, as short sellers were targeting GameStop, online investors were cooking up ways to target the short sellers. If GameStop’s stock continued to fall, as it had consistently since 2013, hedge funds that had bet against the company would have gotten even richer than they already are.īut they didn’t.
By one metric, the company was the second-most-shorted firm out of more than 6,000 companies listed in the New York Stock Exchange and Nasdaq. Either way, GameStop was one of the more popular targets of these hero-villains. Depending on how you look at it, short sellers are heroes of capitalism identifying rotten companies and industries on the verge of collapse, or they’re corrupt worrywarts picking on lovable, vulnerable firms. One layer up, you have institutional investors, such as hedge funds, which “shorted” GameStop, or bet that the value of the stock would decline. In 2020, a pandemic forcibly shut down many of its stores and gutted its revenue.ĭerek Thompson: Three reasons stocks are rising
In 2019, the strip-mall fixture lost almost $500 million. To see how the whole thing went down, imagine a kind of misshapen nesting-doll set with four characters: GameStop, hedge funders, Reddit traders, and zillions of retail investors.Īt the center is GameStop, which is not a great company. The stock lost three-quarters of its value in 85 minutes, plunging from nearly $500 at 10 a.m. Then, this morning, GameStop trading was restricted on the Robinhood platform, where more than half of all users hold shares in the company. The company’s stock rocketed from about $40 to almost $400 in a matter of days, minting day-trader millionaires and extinguishing billions of dollars of bets against the firm placed by institutional investors. This week, the sleepy video-game retailer GameStop went on the ride of its life. If you want it in a sentence, I guess it goes something like this: The GameStop saga is a ludicrous stock mania born of pandemic boredom and FOMO, piggybacking off of a clever Reddit revenge plot, which targeted hedge funds, who made a reckless bet on a struggling retailer-and it’s going to end with lots of people losing incredible amounts of money.
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