On Jan. 11, GameStop appointed Chewy.com’s founder to take the company in a new direction with a new business plan. Over the following days, people on the Reddit page r/wallstreetbets noticed that GameStop stock was being shorted. When a stock is shorted, a hedge fund borrows a stock and then sells it at its market price. They then bet on the market going down for them to be able to buy it again at a lower price thus making a profit. For example, if a hedge fund borrows stock and sells it for $10, the market price then goes down and they buy it back for $8. They can then give the stock back and have made a net profit of $2. However, when users on Reddit noticed what was happening, they advertised on r/wallstreetbets that people should invest in GameStop in order to save the company and thwart the hedge funds. This then drove up the price of the stock.
Apps and platforms like Robinhood have made trading stocks more accessible to a wider audience, like college students and middle class individuals. “It was a crazy 24 hours with everyone rushing to buy stocks and make quick money,” said Kenzie Cameron, ‘22. She bought GameStop stocks on Robinhood based on recommendations from her boyfriend and his friends. Since then, stocks have gone up and down based on influential people tweeting their opinion on whether a certain stock will be “going to the moon.”
The price of GameStop stock has gone up by nearly 8,000 percent in the past six months. In December 2020, Gamestop reported a 30% decrease in sales and the stock closed at $13.66 a share. In January 2021, they appointed a new board director and then on Jan. 13, GameStop stocks rose up 50% to $31.40 a share. On Jan. 22, it surged 50% again, closing at $65.01. Elon Musk then tweeted out a link to the Reddit thread and the stock prices rose another 140% to $354.83 a share. Pricing is determined by supply and demand, so if a lot of people want to buy something then the price goes up. That is the opposite of what hedge funds thought would happen, so instead of making a profit they were losing billions of dollars. This has shown the power of social media and crowdfunding in influencing what had seemed like a hard to navigate stock market.
By Angela Cowo, Contributor