Gamestop stock reached a record high as small investors from an online messaging board take the financial world by storm. Gamestop is filing a lawsuit against Robinhood — the daytrading app that made everything possible.
Hedge funds thought they were smarter than the common man. It is something big corporations often do — a technique called short selling. Essentially, a professional investor can bet that a company’s stock will go down, making a profit. Gamestop, being in bad shape, was such a company that major hedge funds bet against.
That is when Reddit took the stage. A now not-so-small community of people on the WallStreetBets subreddit noticed an advantageous change in the Gamestop leadership.
Small traders began to buy Gamestop stock in bulk, and the interest in the company was reflected in its market value.
Valued at just $4 before the boom, it reached a high of $325 on Jan. 31. Hedge funds, however, have an obligation to their short-sell bet, and need to sell before they lose too much money. The catch? Reddit won’t sell.
Melvin Capital, one of the corporations shorting the market, lost 53% of its portfolio in January.
Their losses were so large, in fact, that another finance company, Citidel, spent $2.75 billion saving Melvin Capital. The consternation reached such fervor that even California Baptist University students have begun investing.
Caleb Chong, sophomore graphic design major and member of Lancer Media Group’s photography and design teams, was fortunate enough to buy Gamestop stock when it was a mere $40 a share.
Approached by a member of WallStreetBets, by what he called “dumb luck,” Chong made an investment on Robin Hood. His return is set to be over $900. Chong is excited about being a part of the movement, but says he may soon sell. He remains ambivalent about the broader implications of the movement, but sympathizes with the die-hard investors behind WallStreetBets.
“To be honest, this is mob mentality,” Chong said. “It brought a lot of good, but on a deeper level, I’m pretty scared. I thought: Gamestop that’s a nostalgic-sounding name, I’ll extend my hand. All I knew was Gamestop was heading in a new direction and the hype was real.”
On Feb. 1, Chong was visibly stressed. Gamestop dropped $100 in a single day as hedge funds continue to play damage control.
He urged people to “ignore fake news” about Redditors selling their holdings. According to Chong, WallStreetBets is stronger than ever before, and Gamestop may just be the first target.
WallStreetBets exposed a flaw in the financial system that is yet to reach full exploitation. There are rumors and not-so-rumors circulating the “r/WallStreetBets” subreddit of attacking other markets being shorted by big business. AMC, the silver industry, and various failing tech companies are just a few of these targeted companies.
Sam Robertus, sophomore sports analytics major, said that he completely supports he completely supports WallStreetBets. For Robertus, Gamestop is illustrating the battle between socio-economic classes.
“For a long time our system, and capitalism in general, really favors rich people,” Sam said. “It puts poor people at a disadvantage, so it is cool when you see people who maybe don’t have as much money come out on top in a situation like this.”
Gamestop has been mostly silent, privatizing the company due to the “sudden increase” in interest. However, on Jan. 29 a press release confirmed their intention to sue Robinhood.
“Robinhood acted contrary to the interests of its clients and anointed itself as the overlord of the free market,” Gamestop said in its press release.
Investors, too, are unhappy with Robinhood’s handling of the situation.
Some of the WallStreetBets users have filed independent lawsuits, which are discussed at length on the forum.