Last week you may have heard that a bunch of redditors somehow managed to manipulate
the stock market to make big bucks from the video game retail store, Gamestop.
Because of the rise of online game buying platforms like Steam,
Epic Games, or Origin, traditional video game retail stores have been taking a hit
in recent years, made worse by the Pandemic and Stay At Home mandates.
One of these has been Gamestop, where the average price of a stake
(or share) in the company bottomed out at around $4 per stake,
a mere 10% of what it was just five years ago. A share entitles the holder to a cut of the cake
when the company makes profits; you own 5% of the shares, you get 5% of the profit.
Except Gamestop isn’t making a profit,
so the value of a stake in the company has dropped massively.
Enter Hedgefunds, the circling sharks of the financial industry. If your stock portfolio
isn’t doing very well, you can hire a Hedge fund company to borrow your failing shares,
sell them for you, wait for the price to go lower, then buy them back for a lower price,
giving them back to you and taking a cut of the profit for themselves. This is called Shorting.
Depending on your point of view, this is either smart business or incredibly
scummy because everyone who bought the borrowed shares has been screwed over.
For many people on the stock trading subreddit Wall Street Bets, this is
scummy behaviour. The main people who benefit from this arrangement is the already wealthy boomers.
You see, young people have been especially hard hit by the pandemic;
people who grew up during the hardship of the Great Recession are now in their twenties,
being let down again by the Coronavirus recession. Many of the more-tech savvy
people turn to gambling on the stock market as a way to make money and many apps have been created
to help normal people start investing. Wall Street Bets is overwhelmingly made
up of these young people with not much else to lose, so in mid January of 2021, they conspired
to rise up against the corporate fat cats and beat the hedge fund at their own game.
On the 26th of January, when hedge funders put up their borrowed stocks
for sale, everyone on Wall Street Bets would purchase shares in Gamestop at the same time,
for around $20 per share. This unexpected increase in demand would cause the price to skyrocket.
Then professional traders catch on, start buying Gamestop too so they don’t miss out,
which is gladly sold to them by the redditors.
The redditors are now rich, the Hedge Funds are now losing billions, and the professional traders
will get what they deserve when they realise they’ve been pulled into a pyramid scheme.
And this worked. Game stop share prices rocketed to over three hundred and seventy dollars.
Some reddit users cashed out immediately, making over 1000% profit, while others are waiting until
the price hits exactly $420.69 cents as one final middle finger to the financial industry.
Many redditors are now moving onto other dying companies like the cinema chain AMC,
Nokia, Blackberry, and Blockbuster in the hope of replicating the phenomenon.
Surely this is illegal, right? The Securities and Exchanges commission,
the government agency responsible for regulating the stock market,
has had some very strong words to say about the practice but there isn’t really much they
can do. People are simply pressing buttons on an app that they are legally allowed to press.
Who knows how or when this will end? Nobody can say for sure,
but all experts are in agreement; somebody is going to lose a lot of money eventually.
What do you think? Is this putting wealth back into the hands of everyday people,
or are they no better than the hedge funders they’re trying to beat?
Is this a generational fight back, or a dispute between the middle class and the upper class?
Feel free to argue about it in the comments. I won’t reply but it’s funny to watch.