First things first, this is not financial advice. These are only opinions on GME stock.
So you’ve heard!
If you pay attention to the financial markets at all, you have almost certainly heard about Gamestop (GME) stock over the past couple of weeks. GME stock was trading for around $5 per share at the beginning of 2020, and today (February 3rd, 2021) it closed at $92.41. The stock was trading for over $450 at one point last week and now sits well under $100, so it has been on quite the ride in a very short period of time.
If you really want the details of why the price has changed so much over the past few weeks, there are many posts out there that explain what is going on at great length. But to quickly recap, the change in stock price has little to do with Gamestop itself. The change stems from when some people noticed that GME stock was being shorted (hoping the price goes down) at a ridiculous level. Over 100% of GME shares were shorted, meaning that there were more shares shorted than existed. Most of these shorts were owned by big institutions, like hedge funds.
The people who noticed this started to come together and purchase GME, causing the price to rise. As the price rose, those institutions that shorted GME had to cover their short positions by buying GME, no matter how high the price. These additional purchases then caused the share price to rise by even more, causing a snowball effect and the price of GME to skyrocket. However, over the past couple of days, the price has fallen significantly again, and there are many theories as to why.
Big money vs. retail investors
At the heart of the GME craze is the ongoing battle of the institutions vs. the common people. The common people feel as if big money and Wall Street has taken advantage of them for far too long. They noticed that the institutions were being overly greedy by shorting GME to such a great extent, and they saw an opportunity to get some payback. If enough people bought and held onto GME, it could cause many large institutions to suffer while the common people made a lot money.
So how much money did I make?
None! But the good news is I did not lose any either. When this craze first started, I considered making an investment. The reasoning for why the stock was destined to soar made sense, and the potential gains were enormous. And the cherry on top would be sticking it to Wall Street for once and having the people win. However, when it came down to it, there were two main reasons I couldn’t get myself to pull the trigger:
- I couldn’t trust others to hold their shares. For GME to increase drastically in price, others had to hold their shares and/or purchase more shares. I couldn’t trust that people wouldn’t panic sell once the stock price inevitably started to drop. Despite the entertaining and determined individuals over at the WallStreetBets subreddit, it was not enough to convince me to buy.
- Secondly, and the bigger reason I did not purchase, was that I was very skeptical that Wall Street would not be able to wiggle their way out of this, whether legally or illegally. We saw with apps like Robinhood limiting purchases just how far Wall Street’s influence could reach. There have been claims of short-ladder attacks by the hedge funds in order to drive down the price, and there have also been reports of media manipulation to try and help the hedge funds. Wall Street has so much money and so much at stake, it is hard for them to lose. And even when they do lose (like in the housing market crash), few, if any, individuals actually get in trouble, so the risks are minimal.
Once in a lifetime
The GME phenomenon is like nothing we have ever seen before. And although I do not have any skin in the game, it has been truly entertaining to watch play out. It will be interesting to see how things develop over the next couple of weeks and how things will change in the future because of this event. I wish the best of luck to all who took the plunge into GME or any other “meme” stock!