A new joke has come out of Reddit in the last few weeks: How do you become a millionaire fast? Be a billionaire and bet on GameStop’s stock to go down.
GameStop is a company that many are familiar with from a time before video games were bought at the click of a button—when kids had to drag their moms to the mall to pick up a game off the shelf. December’s Earnings Report for GameStop’s shareholders showed that sales were down 30% from the same time last year, and some investors questioned whether the company would even stay afloat.
This question of whether or not GameStop would tank soon led some hedge funds, like Melvin Capital and Citron Capital, to “short the stock to zero.” What this means is that, rather than buying or selling shares in the company, the investors “borrow” shares of GameStop (GME) from a broker, sell those shares expecting the stock price to go down and then rebuy the shares to give back to the broker after a set period of time. If things go according to plan, those investors would have made a large profit from selling borrowed GME shares at a relatively low price but buying them back when it’s absolutely worthless at the end of the contract.
However, on Jan. 11, GameStop pointed to a new trajectory by appointing three new members to their board of directors, all of whom were executives of the e-commerce platform Chewy. The same earnings report that pointed to the decline of GameStop also pointed out a 257% growth in online sales—something these three executives have a lot of experience with.
One investor and Redditor, u/DeepFuckingValue, who has been posting updates of his shares in GME since 2019 on the subreddit r/wallstreetbets, has been cited as the one to bring interest in the stock to the forum. Between the news of the new direction of the company, the perception of GME being undervalued and the news that hedge funds were betting on GME to go to zero, the Reddit community began to buzz about the stock.
On Jan. 13 GME went from $19.95 to $31.40 (57% increase) in one day. After another 25% of growth over the next week, Citron Research Group tweeted out that “GameStop $GME buyers at these levels are the suckers at this poker game,” later claiming that their account was hacked after backlash. GME closed at $65.01 that Friday, the 22nd, but the cockiness from the hedge funds, and possibly a millennial nostalgia of GameStop, would fuel a different level of growth thanks to the Reddit community.
With the opening of the markets on Monday, the 25th, Redditors from r/wallstreetbets rallied behind GME to drive the price higher than the stock has ever been. Redditors and investors from NJIT didn’t miss the opportunity either.
“I browse Reddit a lot, and it was inevitable to stumble upon the news of GameStop especially when it first started happening,” said Christian Om, senior information technology major. “Particularly the subreddit r/wallstreetbets is where everything began, and I knew of it before the whole GameStop fiasco. I think it really grabbed my attention though when my friend who is also into stocks and follows that subreddit actually put money and bought up some stocks, and I guess the rest is history.”
On Tuesday, Elon Musk tweeted out “Gamestonk!!” to the delight of many as the stock continued to climb while pundits on television tried to explain the situation, adding fuel to the fire as they attempted to defend the hedge funds and condemn the Redditors.
By Wednesday, the 27th, GME reached its peak of the day at $380 per share (up over 1800% since Jan. 13). Melvin Capital and Citron Capital announced that they were closing their positions on GME, taking billions of dollars in losses among other short-selling hedge funds.
Further controversy was aroused when on Jan. 28, Robinhood—the major platform used by retail investors—and other investing platforms placed restrictions on transactions involving GME as well as other stocks that r/wallstreetbets picked up (AMC Theaters, Blackberry, Nokia and Naked Juice, among others).
The move received major backlash from the internet as Robinhood appeared to side with the wealthy hedge funds. The firm released a statement on Feb. 1 to all users that the reasoning behind limiting volatile stocks stemmed from clearinghouse deposit requirements that have to be met, and the deposit requirements are tied to the volatility of the stocks being bought and sold. In order to comply with the clearinghouse requirements, Robinhood and others made the decision to limit a small minority of stocks to allow the rest of the stocks to be bought and sold without issue.
“I think they’re really scummy,” said Om. “Robinhood could’ve just been transparent about why they put restrictions on trading, but they weren’t. Robinhood and a lot of other brokers have broken the trust of their customers and who knows if a situation like this can occur in the future. A lot of people are starting to move on from Robinhood to other brokers as well, since nowadays the only advantage Robinhood really has is the [User Interface].”
“It’s undeniable that it’s because of the trading restrictions that the prices of the stocks were affected, and the censorship of the people on Robinhood and Discord was either a huge coincidence or were the result of the hedge fund’s influence on these platforms,” said Om, referring to how Discord temporarily banned the r/wallstreetbets server on Jan. 27. “However I do think Robinhood is definitely the fall guy for the entire situation, when the fact of the matter is they’re not the only bad guy.”
Camillo Ortillo, senior computer science major, echoed the anti-Robinhood sentiment, stating “All [of Robinhood’s] changes for limiting buy orders are bad; I think they’re on the hedge fund side. If they didn’t limit orders then we would’ve seen more growth on all the meme stocks, and I would be at three times profit by now.”
Stacy Lee, senior business and information systems major, said “I appreciate Robinhood for getting me started and more interested in investing, but the fact that they prevented users from buying into the ‘meme’ stocks and closing trading really didn’t sit well with me. That was such a dirty move and I want to look into other brokerages now.”
GameStop’s stock has since plummeted from its Jan. 28 max of $483 per share, flattening out around $60. However, the impact of the week of stock market chaos goes beyond stock prices. The U.S. Securities and Exchange Commission issued a statement that they “will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws.”
Politicians from both sides of the aisle, notably Democratic Representative Alexandria Ocasio-Cortez and Republican Senator Ted Cruz, agreed on Twitter that Robinhood and other brokers removing popular stocks from their platforms was unacceptable. Treasury Secretary Janet Yellen stated that regulators would meet to address the situation. New York Attorney General Letitia James tweeted that her office would look into the situation as well.
Robinhood users also filed a class action lawsuit against the company for barring them from openly trading.
What also came from the week of headlines was a deeper knowledge of how the stock market works for many young people, as every news station and influencer commented on the situation and tried to explain to others what short selling is. “I’m a novice to the scene and learned a small amount about stocks prior to this incident from my grandfather,” said Dyllon Stejakoski, applied physics junior. “I found how to make a brokerage account that connected with my personal bank and fully got into the scene as a direct result from the events that happened.”
Lee followed a similar path. “I started investing last year during the summer, I think. I was always interested in stocks and just increasing my financial literacy. This event definitely has me wanting to do more research and learn more about investing, stock markets, options, et cetera.”
Because of GameStop’s stock prices and a Reddit forum, more retail investors than ever are participating in the stock market. Thanks to a wave of people on r/wallstreetbets, GameStop is once again giving power to the players.
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