Propelled by a mix of greed and boredom, gleefully determined to teach Wall Street a lesson, and turbocharged by an endless flow of get-rich-quick hype and ideas delivered via social media, the investors right from a real estate salesman in Valparaiso, Ind, to a former line cook from the Bronx to an evangelical pastor and his wife in Huntington Beach, Calif to a high school student in the Milwaukee suburbs to among the millions of amateur traders have piled into trades around several companies, pushing their stock prices to stratospheric levels according to NY Times.
Some of the names are from an earlier business era. BlackBerry’s shares are up by nearly 280 per cent this year. Stock in AMC, the movie theater chain, has surged nearly by 840 per cent. But the trade that captures the David-versus-Goliath nature of the moment involves GameStop, the troubled video game retailer that was once a fixture in suburban malls.
On Wall Street, individual investors are often derided as “dumb money,” destined to lose against the highly compensated analysts and traders who buy and sell stocks for a living. But in recent days, individual investors — many of them are followers of a popular, juvenile, foul-mouthed Reddit page called Wall Street Bets — have upended that narrative by banding together to put the squeeze on at least two hedge funds that had bet that GameStop’s shares would fall.
While the hedge funds and other professional money managers had been shorting GameStop’s shares, betting that its stock was doomed to further decline, the retail investors — online traders, mom-and-pop investors, small brokers and others — have been pushing the other way, buying shares and stock options. That caused GameStop’s market value to increase to over $24 billion from $2 billion in a matter of days. Its shares have risen over 1,700 per cent since December. Between Tuesday and Wednesday, the market value rose over $10 billion.
Ben Patte, 16, a high school student in Wisconsin who said he made $750 off GameStop stock, said the campaign felt like vindication for himself and fellow young traders. “It’s a good opportunity to make money and stick it to the hedge funds. By buying GameStop, it’s kind of like beating them at their own game,” he said.
This happened when a bunch of hedge funds (companies with billions of dollars to invest) shorted GameStop stock from $20 to $10 to $4. They made billions of dollars but the company was going bankrupt. These hedge funders are greedy people and they wanted to make more money and they started selling more stock and have sold almost 140 per cent of the stock which technically should’ve 100 per cent but the hedge funders sold more stocks than was actually available which is a sign of greediness and dumbness.
This was noticed by a member of investing subreddit. The rule of short selling is that all the shares that have been sold need to buyback. The Redditors realised and told everyone and everyone began to buy Gamestop shares the price of the stock went up from $4 to $424 as of 18hrs back record. And all the investors are commoners and they refused to sell and kept buying. Melvin Capital, the hedge fund that shorted the most of Gamestop’s shares is currently in the worst state.
