After a frenzy of dizzying digits, totals tallied, integers imputed and decimals dotted, purchasing shares on the popular stock trading and investment app, Robin Hood, was abruptly halted.
For months before the event, retail investors loosely organized on the Reddit forum, WallStreetBets, to coordinate a collective purchasing of AMC Entertainment Holdings (AMC), Nokia (NOK), and most notably GameStop (GME) stocks after learning hedge funds such as the American Investment management firm Melvin Capital was planning on short selling the stock, betting it would go down in price.
Shorting is a tactic usually used by hedge fund managers that essentially relies on the prediction that the price of the stock purchased will decrease, Dr. Jungjun Park, Fort Lewis College professor of economics, said.
“For the short seller you can always make profit if the stock price is less than what you paid,” Park said.
This is what the Reddit users were trying to exploit, according to an article published The Chicago Tribune. Equipped with knowledge disseminated on the forums that Wall Street hedge funds intended to short sell their targeted stocks, the Reddit members launched the price of the stock upwards after collectively investing in the companies.
Until recently, GameStop and AMC were barely afloat due to a decline in popularity. But after the coordination, GME hit an all time high of $483 per share on Jan 28., according to an article published by Business Insider.
However, shortly after news broke of the event, Robin Hood posted on their official blog, “Under the Hood,” on Jan. 28 stating, “They were no longer allowing users to buy stocks from GameStop, AMC, and Nokia,” citing market volatility, which means customers could sell their shares but could not buy or trade them in those companies, according to financial staff reporters David Priest and Oscar Gonzales on CNET.
While dishing up a little side income or steeping memories of adolescent days spent shopping at GameStop in a brew of nostalgia was incentive enough for some Reddit Day Traders to purchase stock in GameStop, the main course for many was raw revenge.
According to Reddit poster aoechamp, “GME is about more than just money, GME is about sending a message.” The post continues, “For all the recessions they caused. For all the jobs and homes people have lost. For all the people that can’t pay for college because minimum wage has stagnated while wall street gets rich. For all the retail traders they left holding the bag. For all the times they got bailed out with our tax money while we got nothing.”
Having been upvoted on Reddit 31.1 thousand times this sentiment echo’s far and wide. Vast enough the resonance it even reverberates in the halls of Fort Lewis College.
Armondo Yazzie, a Fort Lewis College Business Administration major, minoring in theatre, was first inspired to invest by what he perceives as a “revolution” and a way to get back at the establishment, Yazzie said.
Yazzie was a manager at Denny’s, but lost his job due to his class schedule and began relying on unemployment, he said. Also with the help of his stimulus check, Yazzie said he had the little capital he needed to begin trading.
The indignation of economic troubles felt by Yazzie at first, later turned into excitement when he doubled his portfolio as a result of investing in AMC, which he chose because of his interest in theater, Yazzie said.
Dr. Wade Litt, associate professor of economics, hopes that the frenzy surrounding GameStop will increase participation in the stock market, he said.
The excitement certainly has garnered interest due to RobinHood, making trading more accessible and comfortable to a younger clientele, he said.
The more people involved in the stock market, the more efficient it becomes because more participation reflects a more accurate depiction of the market value, Litt said.
In the end, Robin Hood’s decision to stop retail investors from buying stocks resulted in the value of GameStop shares plummeting, Litt said.
Despite what many redditors viewed as an inequity, Dr. Litt said the “ bubble”, a term used in economics, was going to pop anyway, meaning the stock’s value couldn’t stay high because it didn’t reflect the actual value of the stock.
There’s no way to justify a stock's value based on pure speculation, and a company’s worth needs to be based on its earnings, Litt said.
Still, Park and Litt have some tips for any FLC students looking to expand their stock portfolio.
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Take Dr. Jungjun’s Mock Trading Class.
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Practice using Investopedia’s Stock Market Game.
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Read The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns.
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Start young. A 22 year old who invests $6,000 per year until they’re 32 will make more money than a 33 year old investing 6,000 dollars per year until they retire, due to compound interest.
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Read the Wall Street Journal to stay up-to-date on the financial happenings of the world.
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If you’re new to the stock game, it’s safer to make long-term investments rather than try to keep up with the constant fluctuation that comes with day trading.