The GameStonks Revolution

By Cynquetta Dean 

Last month, the world witnessed an incredible event in the U.S. stock market, organized by millions of Reddit users. What started as mere stock market speculation over a year ago, eventually grew into an entire movement for many members of the middle class across Reddit and Twitter. The popular Reddit subgroup, WallStreetBets, was at the heart of this "Occupy Wall Street'' type movement and many people got their stimulus checks one way or another. The event included two sides. One side was a group of young investors that bonded together to drive up the share price of companies that were struggling, like Gamestop and AMC. The other side included hedge funds that placed bets against those failing companies under the assumption that those stocks would crash.

Quick Background

Long ago, dabbling in the stock market was viewed as something only wealthy people did and understood. It was manipulated into being overly complicated and based on income status. Over the last few years, stock market trading has advanced by providing investors with easier access to information, and it has even become “videogame like” to appeal to younger investors. Trading apps like Robinhood, WeBull, and Acorns offer a quick and simple way for users to purchase stock, especially for beginners. We also have Google, where we can look up what something means on the spot compared to when our parents were our age. You no longer have to be rich or work for a hedge fund to engage in the stock market. Buying stock and the overall concept of ownership is becoming more normalized with each generation and it is a sure way to build wealth. 

Stock Market Frenzy

Millennial and Gen Z investors have made the stock market interesting in the last few months. They have created investor group chats, one on one sessions to learn about investing, personal finance groups on Facebook, and many other ways to keep the investment community together to learn. The Reddit group, WallStreetBets, once had less than 80k members and today they have roughly 9.1 million members in just one month as users navigated to the group for trading advice and moves. This group is not necessarily a financial advice group, so make sure to discuss finances with actual fiduciary professionals. This membership growth may have also skyrocketed due to constant news coverage, increased interest in the supposed war against billionaires, and people wanting to make some fast money. 

Why was GameStop targeted? GameStop is an obvious company to short-sell because many consumers are now purchasing games online for download. There is no longer a need for physical gaming stores. Hedge funds tend to short-sell failing companies to make some money. 

You are probably wondering, “What is a short-sell or short?” Shorts are created when an investor borrows a stock, sells it, and expects to buy it back later for less money. Hedge funds often do this with companies that are obviously failing with no chance of making a comeback, like GameStop. A member of the WallSteetBets community found out about this information through their research and told the rest of the group. Members began to buy GameStop stock with some even placing their whole life savings into GameStop shares. This information spread for a few months while making its way onto Twitter before taking off in January 2021. 

Once word got out about GameStop being shorted by hedge funds, younger investors began to purchase GameStop stock in large amounts. The stock price hovered around roughly $26 per share before the frenzy. It quickly skyrocketed to nearly $500 per share within a few days. The increase in stock purchases drove the GameStop price up +1700%, creating a major short squeeze. Now, you are probably wondering “what is a short squeeze?” A short squeeze happens when a stock of a company dramatically increases after an investor shorts it. This forces the rich hedge fund investors to buy back their shares before they lose billions of dollars and have to be bailed out by taxpayers. FYI, hedge funds lost $19 billion dollars in January due to shorting practices. 

Although hedge funds lost tons of money, many Redditors and their allies had made thousands of dollars from this short squeeze event. Some people that experienced large gains donated to charities to help with COVID-19 relief. One person from Reddit paid off $23,000 in student loan debt with their earnings. Another person was able to pay off their mortgage. We have to be cautious of events like this one. It is important to understand that many people also lost money if they did not sell their shares at the right time. In these types of situations, there will always be a group that makes a lot of money while the rest lose out.

Now What?

Should you participate in events such as the GameStop situation? It is up to you based on your risk tolerance. I, too, dabbled in the madness but only do this at your own risk! Do not buy what you are not willing to lose since these situations are extremely risky. If you make any money from events such as this one, reinvest those funds into safer investments like index funds and ETFs (exchange traded funds) for continued growth in your stock portfolio. If you do not have an investment portfolio, you can open accounts with brokers like Fidelity, Vanguard, TD Ameritrade, and a host of others. I recommend opening a Roth IRA and maxing it out at $6000 to experience tax free withdrawals when you retire. Always remember to do your own research before making an investment.

Meet the Writer

Cynquetta Dean is a 27-year-old Army veteran and currently lives in Las Vegas, NV. She works in the internet retail industry as a Process Engineer, and she also has her Master’s in Business Administration. She enjoys traveling, reading about financial topics, and spending time with her husband while working on home improvement projects. She also has a blog, Girl Investment Group, where she writes about investing for beginners, debt-free living, and lifestyle luxuries.