What is going on with Reddit and the stock market? What is short-selling? Should I be buying shares in GameStop? Until very recently, probably not common questions that anyone would be asking themselves. However, the last few days have seen the internet and the investing world—namely Wall Street—thrown into chaotic glee.
To boil it down to its simplest: a number of Reddit users have quite stunningly raised the share price of GameStop stocks, turned impressive profits, decimated investors who were looking to short-sell GameStop stocks (about $5 billion USD so far) and basically, taken manipulation of the stock market out of the hands of hedge funds and into the hands of “the people.”
Below, the briefest explainer on why everyone’s talking about GameStop and Reddit. No, you don’t need to rush out and buy shares.
What is GameStop?
Think of the beloved Blockbuster video rental stores of old, but for video games. The American video game retailer is something of a relic, especially in the brave new world of buying games digitally. (To paraphrase those old piracy ads: yes, you would download a game.) Last year they announced the closure of many stores and shares in the struggling business could be bought for as lost as $3.25 USD. Opportunistic hedge funds began short-selling GameStop.
What is short-selling?
Per MarketWatch, “shorting, or short-selling, is when an investor borrows shares and immediately sells them, hoping he or she can scoop them up later at a lower price, return them to the lender and pocket the difference.” It’s worth noting this is an extremely risky strategy, and that the people doing this are often within the professional investment institution and at hedge funds.
Depending on your perspective, this is either a savvy or a very scummy practice, but it is technically legal. Hence the wave of criticism of short-sellers during the 2008 financial crisis: it’s not illegal to profit off someone losing their home, but it’s pretty callous and morally dubious.
What have Redditors done to GameStop and Wall Street?
The good people of r/WallStreetBets—a very casual and irreverent subreddit that treats the stock market as a game—started buying GameStop shares in droves. As the buying snowballed through the subreddit and Elon Musk amplified awareness of the situation with a joke tweet, GameStop stock prices sky-rocketed. In the last two weeks, the price has jumped nearly 700%.
This was extremely bad news for Citron Research and Melvin Capital, who were two major GameStop short-sellers hoping to sell their shares at a loss. Since this all went down, Citron and Melvin have announced they were giving up their positions at a loss.
What does any of this *actually* mean?
The drama is still unfolding, with the Wall Street old guard getting extremely riled up and even calling for potential regulations against these ‘vigilante’ investors. Much of the discourse surrounding the events are about how joyful it is to see manipulative investors profiting off people’s loss to get a taste of their own medicine.
Others are quite rightly pointing out the hollowness of the stock market as a tool for measuring any real sense of economic prosperity—a feat which was crowed about during a pandemic that has left hundreds of thousands dead and millions jobless.
For now, we’ll be watching and waiting to see what else people realise they can accomplish through the power of collective action. Oh, and enjoying the memes of course.