Most of us have become familiar with the terms “Short-selling”, “GameStop” and “Buy and Hold” over the last month or so.
Even if most of you have never dabbled in the stock market, or have ever shown enough interest to want to learn about it, it has become an inescapable part of the news cycle. Even on social media, where the half-life of a meme or news-story is much shorter, this bit of news remained an ongoing story for the longest time on Facebook, Twitter, Instagram, and Reddit (Reddit, the social media website proved to be one of the main players of the whole incident).
This has led a lot of us into going on to googling what all those terms mean to try and piece together exactly what happened and why people are so excited about it.
As the dust settles on the incident and the GameStop bubble (predictably) bursts as share-prices dwindle, let us reflect on what exactly happened, and what all of it entails.
Stock Data
Before we can delve into the “why”, and the “what next”, we have to look at the what. What exactly happened, and why was it such a big deal?
GameStop is an American videogame retail company. Ever since the advent of online purchases and online games with consoles that required no physical discs, in-store purchases have dwindled to negligible rates, and the lack of business reflected in the stock prices of the company. Since 2017 the worth of a share of GME (GameStop) was never more than 40$. In more recent times, from 2019 onwards, the share price was having trouble crossing the 5$ mark for the longest time.
In July 2020, the stock price was staying around 4$ a share, and it was pretty obvious to everyone that there was not much reason for there to be any surge in the stock price. Infact, according to most financial professionals, the company was not expected to (and still not expected to) actually be profitable until 2023.
On December 8th, GameStop missed quarterly revenue estimates and then stock-price declined even further. With the dropping stock-prices, it became easier to buy GME stocks, and this commonsense, pushed by users on r/WallStreetBets (a subreddit) people began to buy shares.
This caused a jump in stock prices from not being able to break $5 to almost $40 per share on the 13th of January. This surge in prices caused many other small-time investors to start investing in GME. Most analysts put the median target price at only $12.50, however.
Citron Research, a famed short-seller (and research company) tweeted about this phenomenon, disparaging all those buying GME stocks at that level. According to them, GME will quickly go down to $20 and that is what it was worth.
This was cause for issue for Citron Research and Melvin capital. Both of them had bet against the company, meaning that they would be losing money the more people bought GME stocks and drove up share-price.
On the 26th of January, Elon Musk tweeted “GameStonks” and linked to the subreddit responsible for most of the early phishing of buying and later push to hold GME stocks. On the 27th of January, the GME stock rose to the peak of more than 347$ per share, and the same day Melvin Capital and Citron Research submitted, closing their GameStop position at a loss.
Melvin Capital and the tears of Billionaires
The GameStop incident was a huge debacle for those betting against the company. Most of the people doing the short-selling were actually big market players and those betting with it were small-investors using apps like RobinHood to buy shares on a very small scale. But since there was a lot of herd-trading going on and it had elements of organized attempts at buying and holding at the same time, the small-time players were able to quite literally, cause billionaires to cry on camera (this in reference to Leon Cooperman, one of the billionaires that were upset at the Gamestop surge and were seen visibly crying during a rant about the rising share prices and the players responsible on CNBC.
In Conclusion
To sum it up, on a never before seen scale, small investors on Reddit using phone apps were able to target big-time players that were targeting a favorite company of theirs. This caused Melvin Capital to lose more than 3 Billion dollars and caused a flurry of billionaire elites to complain about the matter.
In the end, the bubble did burst, and most of the people buying and holding GME stocks did lose a lot of money, but not as much money as the hedge fund elites, and to some, if not a lot, of the Redditors responsible for the surge and most of the masses watching this happening, it was fun to see a billionaire cry.
Although most of those that saw this saw what happened later on with Robinhood stopping trading in GME stocks and talks of regulation of who can invest in the stock market or not have become cynical about the repercussions of this victory of the proletariat, co-founder of Reddit, Alexis Ohanian speaking to Alexandria Ocasio Cortez on a Twitch-stream said the following:
“No one’s gonna wake up in a week and be like let’s all go back to how it was. The collective public cannot unsee this, and so I think that there’s going to be more and more energy to find decentralized solutions. There is so much energy to rally behind something that isn’t capable of having the game rigged”.
Let us hope that is true. Until then, wait for the next call to “Buy and Hold”.
Viva La Revolucion!
