By Chris Crymes
This graph represents the rise and fall of the GameStop stocks. It is still falling despite Robinhood allowing trading again.
The average American has often been barred from the stock market. After the 2008 housing crisis and stock bomb, many have steered themselves away from even educating themselves on the matters of the market. But with even more people quarantined indoors during the ongoing pandemic, armed with knowledge from the reddit forum: r/wallstreetbets and trading apps like Robinhood, some have taken to informing themselves online in their free time.
First, a brief catch up. According to their earnings report, Grapevine, Texas-based video game retailer GameStop reported in early December 2020 that their net sales dropped by more than 30%, resulting in a $63 million operating loss in the third quarter of 2020. This dropped GameStop’s stock to just above $13 a share on Dec. 9.
On Jan. 11, GameStop announced the appointment of three new directors, including Ryan Cohen, founder of onlineretailer Chewy and No. 1 GameStop shareholder, and Alan Attal, Chewy’s former chief marketing officer who oversaw the company’s expansion from three to over 10,000 employees. This announcement quickly started conversations on the aforementioned forum, r/wallstreetbets, leading some to make a preemptive jump to buy GameStop stock, surging the stock over 50% at $31.40 a share just two days later on Jan.13.
Jan. 19, stock short-seller Andrew Left’s firm Citron Research took to Twitter to punch down at the everyday person taking their shot at the stock market, calling them “suckers at this poker game.” Also saying, “We understand short interest better than you.”
Citron also published a YouTube video highlighting reasons the GameStop stock will fall, which has since been taken down from the firm’s channel after the stock closed at just over $43 on Jan. 21.
This was just one degree of the internet-wide back and forth taking place between the solo r/wallstreetbets investors and affluent hedge fund brokers. Less than a day later, fueled by becoming the hot button topic, the GameStop stock opened the day at $42.59 per share and jumped another $20 to $65 by the end of the day. After weekend trading, the stock opened the morning of Jan. 25 at $96.73.
By Jan. 26, venture capitalists Elon Musk and Chamath Palihapitiya had boarded the “GameStonk” train, tweeting out their investments into the company’s stock to their millions deep Twitter followings. Assumedly, their followers followed them, sending the stock up almost 140% by market open Jan. 27 at $354.83 per share.
This giant leap was the knockout punch for most firms making a short-term gamble on the stock. One of which being Citron Research’s Citron Capital, who announced a 100% loss after letting go of their burrowed GameStop stocks, held hoping the stock would quickly fall.
After the loss, Citron’s Left said he had, “respect for the people on wallstreetbets and on Reddit message boards.”
Another big loser in the GameStop debacle was Melvin Capital, who reported to The New York Times, had lost 53% of its portfolio valued at $12.5 billion.
Said debacle took another unexpected turn on Jan. 28 when stock trading platforms like Robinhood began restricting hotly debated stocks including GameStop’s GME and AMC Theatres’ AMC, quoting deposit requirements as the reason for pulling the stocks. This triggered both backlash for the companies doing so and a mass drop in the GME stock price, from $483 to just over $112 by the end of the day.
By Jan. 29, the U.S. Securities and Exchange Commission became involved.
“The Commission is closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the next several days,” according to an issued statement.
They did not mention any stocks or platforms by name, but the Commission continues to say it “will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws.”
Even with this investigation and monitoring, it’s difficult to say if anything illegal was done. When interviewed by ABC News, Josh White, a former economist for the Securities and Exchange Commission had this to say on the matter of legality of internet trading.
“In this case, it’s not clear that an internet chat room that says ‘Hey, we should all go buy this stock,’ is manipulation,” White said.
By now, GME has fallen further with each passing day, at $59.13 per share as of Feb. 8. With the story dying back out, TJC economy professor Cullin Davis expressed some possible lessons to be learned from this situation.
“Generally, the biggest takeaway is be careful with your investments,” Davis said. “If someone is achieving returns that out pace the market, it is likely not stable.”
All this made January quite the action-packed month on the stock market. With the stocks GME and AMC falling by the day, it seems to be on to the next hot-ticket item for short-term investors.
“The only way to beat the market is to either do something illegal, find a moment of irrationality among investors or get lucky and none of those things are expected to last a long time,” Davis said.