The stock that changed investing history

A battle between an army of amateur investors and multi-billion-dollar hedge funds.

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Jackson Taggart, Staff Reporter

The Gamestop investment started a trading frenzy, causing the share prices of dying companies to skyrocket, and destroying short-sellers who bet against them. Short-selling is a way of profiting when prices of assets like oil, iron, or a company’s shares fall. It’s a way to determine the prices of any asset. The short seller pays a small fee to borrow shares from a company, then they wait until the prices rise, and sell the shares back to the company in return for giving them profit.

One very unlikely company that suffered from this was Gamestop, a video game store that has been struggling and was threatened to shut down because of the pandemic. Institutional investors, including the Melvin Capital, saw an opportunity to gain profit by betting against Gamestop shares. 

A group of amateur teen investors from Reddit, a social media app, called themselves the ¨WallStreetBets¨, and decided to buy into Gamestop shares because they thought it was undervalued. They wanted to keep Gamestop alive and send a message to the short-sellers. By acting in unison, they pushed up the prices of the shares astronomically, causing massive losses for short-sellers. Once word of this got out, it started to spread across social media and brought in thousands of people with no experience in investing, and by following the steps set out by the WallStreetBets, they pushed Melvin Capital over the edge, resulting in billions lost. James Blackman (23) said, “The Melvin Capital deserved this and the Wall Street boys aren’t the bad guys here. They simply stopped Melvin Capital from destroying Gamestop and supported companies on the verge of bankruptcy.”

Investors successfully pushed gamestop’s prices from $2.13 last year to $350 on Jan. 27 this year. Since some hedge funds had sold all their shares they borrowed, they were facing huge losses and had to buy shares back to stop those losses from rising any further. Buying those shares back created a higher demand for the shares, pushing the prices even higher.

This is the first time in history that ordinary investors caused such tremendous losses to large funds. Robinhood is the main trading and investment app and they suspended purchases from Gamestop and other small companies that could get in the way of the larger investors. Dozens of lawsuits have been filed against Robinhood as well as other financial institutions that have restricted trading. Yuri Nemeth (23) said, “This showed investors what they can do if they work together and I believe that this will happen again in the near future.”