Op-Ed: What Happened with GameStop?

A+GameStop+Strip+Mall+Location.

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A GameStop Strip Mall Location.

Charles McLaughlin, Writer

Over the past few weeks, there has been a meteoric rise and fall in GameStop’s stock price. This rollercoaster of stock value has been heavily covered in the news, and I have been fascinated while following these events.

I started following the WallStreetBets subreddit a couple of years ago, and the GameStop story itself over the past month or so. 

According to The New York Times, large hedge funds—a group of pooled investments with a lot of money behind it—had been betting against GameStop in what is known as a short position, with the goal of making money on the continued failure of GameStop. 

The online frenzy that has engulfed GameStop is, at its heart, a classic stock-market strategy of big Wall Street investors that has been embraced by retail investors,” the article explains. “Acting en masse, they have bid up shares that other investors — in this case some hedge funds, including Melvin Capital — had bet against. Called a short squeeze, the idea is to put pressure on the short sellers, who had sold borrowed shares with the intention of repurchasing them at a lower price. The shorts would be forced to buy the rising shares to minimize their losses, accelerating the rise.”

This strategy is not a recent development, and many considered betting against GameStop a safe play. The rise of online retailers has been detrimental to the store, and recently, the pandemic has not helped in-person sales. 

About a year ago, people on the subredditthe community part of Reddit, in this case WallStreetBets—realized that there was an opportunity to burst the bubble.

To summarize the strategy, if enough people were to buy stock in GME (GameStop), then the stock price could rise to a point where hedge funds would lose money on their investment. Then, to cover their losses, the hedge funds would have to send the stock price even higher by buying up additional shares. This is referred to commonly as “the squeeze.”

But the question remains, why does this matter? Although I’ve been following WallStreetBets for some time, I’m not someone who is really into stocks.

What I do care about is people, and this shows that hedge funds stand to make a profit at the expense of people who might be less well-off.

However, this also shows that power can be returned to the people. Communicating over Reddit, people were able to purchase stock and make a profit for themselves.

“Ian Poppel, 23, a wildland firefighter in Winnipeg, Manitoba, invested $18,000 — equivalent to an entire fire season’s salary — into GameStop over three days, just before the stock took off. He cashed out last Wednesday, a day before the rally peaked,” the New York Times article shared. “He netted about $40,000, a sum he called ‘life-changing money.'”

Now, the situation is being examined by the House Financial Services Committee. While the outcome remains to be seen, the past few months will be ones to remember, and I sincerely hope innocent people are not negatively impacted by hedge funds any more than they already have been.