On January 28, 2021, GameStop Corporation, an American video game and entertainment software retailer, announced that it would be closing 150 stores worldwide due to the COVID-19 pandemic and “financial challenges.” This news came as a total shock to me and many others. I’ve been a GameStop customer since I was a kid, and I remember how excited I used to get when I went to the store to buy the latest video game release.
Amateur Investors Take on Wall Street
A group of amateur investors started buying shares of GameStop in early January. GameStop is a retail chain that sells video games and has over 5,000 stores worldwide. The investors were gambling that the company would eventually be bought out or go public, and they wanted to take advantage of what they saw as an undervalued stock. The move caught the attention of hedge funds and other professional investors, who also began buying up GameStop shares. As more and more people poured money into the company, its stock price soared, giving amateur investors huge profits.
The situation came to a head on January 27th, when GameStop shares hit an all-time high of $483 per share. At that point, the Amateur investors had made so much money that they began to sell their shares, causing the stock price to plummet. The plunge continued on January 28th, with GameStop shares closing at $193 – a loss of 60% from their peak just one day earlier. The story of GameStop is a classic example of how a group of small investors can take on Wall Street and come out ahead – at least for a little while. However, it also highlights the risks associated with investing in individual stocks, particularly when professional investors heavily trade them.
The GameStop story
GameStop Corporation (GME) closed at $347.51 per share on January 27, 2021, up from $17.25 per share in just one month. The surge was caused by a group of non-professional investors who got together on Reddit to buy stock in struggling businesses that they thought were undervalued by Wall Street. The group’s actions resulted in a short squeeze, wherein hedge funds that had bet against these companies lost billions of dollars. The story made headlines globally and brought new awareness to the power of social media to shape financial markets.
The Amateur Investors is a blog dedicated to helping people learn about investing and personal finance. We believe anyone can become a successful investor with the right education and guidance. Our goal is to provide our readers with actionable tips and advice that they can use to improve their financial situation. The investors responsible for the GameStop rally are mostly young men who congregate on Reddit forums such as r/wallstreetbets and Discord chat rooms. They trade stock tips, tell jokes and discuss their plans to profit in the stock market. Some amateur investors who profited from the GameStop rally took their money and left, while others held onto their shares, gambling that the stock would continue to go up.
How a Group of Amateur Investors Took on Wall Street
On July 26, 2019, GameStop Corporation (GME) stock closed at $5.64 per share. By the end of January 2021, it had reached an astonishing $483.00 per share, which is over 7,600% more than the original value. For comparison, the Dow Jones Industrial Average (DJIA) increased by a mere 3% during the same period. How did this happen?
The story of GameStop’s stock price increase is one of the amateur investors taking on Wall Street. Amateur investors invest without the help of a professional broker or financial advisor. For example, in early 2020, a group of novice investors started buying GME stock and highlighting it on Reddit. They thought the stock was underpriced and its value would eventually go up. Instead, as more individuals bought GME stock, the price increased.
While this was happening, professional investors who predicted GME’s stock price would fall were making bets. These professional investors are called “short-sellers.” The short-sellers lost money as GME’s stock price continued to go up. They had to buy more GME stock to cover their losses, which then caused the price to increase even more. This is called a “short squeeze.” The combination of amateur investors buying GME stock and short-sellers being forced to buy more stock caused the price of GME to increase exponentially. From July 2019 to January 2021, the price of GME went from $5.64 per share to $483.00 per share – an increase of over 7600%.
Amateur Investors vs. Wall Street
A group of amateur investors started buying shares of GameStop in late January. This retail chain’s stock had been trading at record lows, so their goal was to drive up the price and force establishment investors to abandon their bearish bets against the company. The plan was successful. Over a few weeks, the stock price soared by more than 1,700%, putting enormous pressure on the hedge funds that had bet against GameStop. As a result, several funds were forced to abandon their positions and take massive losses. The story of how a group of non-professional investors beat Wall Street is still being written. But it has already changed our perspectives on markets, investing, and democracy.
For over a week now, a group of amateur investors who met on Reddit have been trying to inflate the stock prices of GameStop and other struggling companies to make a profit at the expense of Wall Street hedge funds that have bet against those businesses. Unfortunately, the amateurs appear to have won the first round. Despite a fourth-quarter loss greater than analysts had predicted, GameStop’s stock shot up by more than 25 percent on Wednesday after the video game retailer announced strong holiday sales.
Since early January, when a Reddit group began urging its members to buy shares to drive up the price and punish hedge funds that had bet against the stock, the company’s stock has risen more than 1,600 percent. Wednesday saw other companies, whose stocks have been caught up in the Reddit-fueled trading craze, also experience gains.
What’s Next for the Amateur Investors?
With the GameStop saga now over, what will happen to the amateur investors who took on Wall Street? According to CNBC, many amateur investors are moving on to other stocks that they believe are undervalued by the market. For example, AMC Entertainment, BlackBerry and Nokia are all seeing increased interest. Of course, only time will tell if these investors can equal the success they found with GameStop. Nevertheless, there is one certain thing: they have made an impact in the world of finance.