At the hands of civilian market participants, GameStop Corp. stock reached an all-time high of $347.51 on Jan. 27 in an unprecedented stock-buying frenzy. The stock peaked briefly at $483 on Jan. 28 and has caused the House of Representatives Finance Committee and the U.S. Securities and Exchange Commission to look into the risks of similar public stock.
Short selling, or speculation on the decline of stock is not new, but the technology and figures at play created a brand-new situation. In December 2020, GameStop reported that its net sales in the 2020 fiscal year were down 30% compared to 2019, a surprising report given the overall rise in gaming in 2020 and that GameStop experienced increased sales in e-commerce and greater consumer interest in new game consoles. On Dec. 13, GameStop experienced a 20% in stock value at $13.66 the day after it announced a $63 million loss in the third quarter.
Shortly thereafter, on Jan. 11, GameStop announced three new directors to its board, who wanted to “enhance stockholder value by expanding the ways in which it delights customers and by becoming the ultimate destination for gamers,” according to its news release. Meanwhile, on a Reddit page called WallStreetBets, an individual investor identified by Wall Street Journal as Keith Gill was encouraging members to invest in GameStop. On Jan. 13, the company experienced its first spike of over 50% since the announcement of its new board members.
There was another driving force behind the drastic value fluctuations. “The second part of the driver was the observation that there were a number of hedge funds who basically had a bet that GameStop would go to zero,” said Ciamac Moallemi, professor at Columbia University’s business school, in an interview with ABC. This was a “small but growing group that believed the market was discounting GameStop too much, and that there was some underlying value there and that the business could be turned around,” said Moallemi.
Value continued to rise, and, on Jan. 26, Elon Musk tweeted out support, saying, “Gamestonk!!” with a link to the original Reddit WallStreetBets forum. Other high-profile venture capitalists shared their support of the growing movement, and, on Jan. 27, the stock opened at $354.83 a share. At this point, some investment trading platforms like RobinHood began restricting trade, according to NPR.
Woody Woodring, junior double major in finance and accounting, placed an order for GameStop share, but the order was never fulfilled. This happened to many people because “Robinhood didn’t have enough cash to cover all the trades that were being submitted,” Woodring said. Woodring enjoys investing because “Learning about businesses allows you to learn more about the world in general and how powerful human innovation really is.”
For people that invested in GameStop, it was about more than just making money. It was their chance to be a part of a movement. Alexandria Ocasio-Cortez, member of the House Financial Services Committee that held a hearing on the state of the stock market, tweeted, “Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino.”
Since Jan. 27, the bubble has burst and the value has stayed at around $40 for a few weeks. On Feb. 23, GameStop Chief Finance Officer Jim Bell announced that he will be resigning. While these temporary effects are immediate, the event created long-term consequences, such as questions about investor protection and market integrity.
“One thing to think about investing now is that it is more and more democratized,” Woodring said. “When there is more democracy we allow more stupid people to do more stupid things. People are irrational, and people are often uneducated. When you combine those two factors you get something like ‘Gamestonks.’ That being said, I think more democracy in finance is good, it allows more people to become financially free. People just need access to information, which is one reason we wanted to start up JBU’s investment group again.”
If watching the GameStop investments story unfold was fascinating to you and you want to learn how to invest, Woodring and Nate Brown have decided to start an investment group at JBU. You do not need to be a business major to join. “For those with more classroom experience, we are going to be doing research and eventually investing real money in a group fund. For those with less experience, we will be providing education and learning opportunities for students through speakers and a simulation game,” Woodring explained. “Investing is really interesting, it is a great skill to know for life, and, dare I say, it is fun! We want everyone to be a part of it!” For more information email woodringd@jbu.edu or brownna@jbu.edu
Photo courtesy of the Department of Financial Institutions
Graphic by Jeffrey Hernandez/The Threefold Advocate