2021 has just begun and instead of discussing Australian Wildfires and the possibility of World War 3, the big topic of the past month was of all things; the Stock Market.
In July, the stock price for the retail video store Gamestop was roughly $4, but throughout the rest of 2020 the price continued to rise until January 2021 when it surged up to $347. This jump was also seen with AMC going from $4.96 on January 26th, and then all the way up to $19.90 the following day. Similarly, Blackberry was $25.10 on the January 27th, which was a big increase considering it has been less than $10 for the past 6 months. These prices are all noteworthy because none of these companies had done anything to warrant the increases. In fact, Gamestop sales had been falling, no one has been going to the theaters due to Covid-19, and blackberry phones have been out of popularity for quite some time now. The surge in cost, shocked everyone including financial wizard Elon Musk. So everyone wants to know, how did this happen?
It begins with a Reddit group called WallStreetBets, who discuss the stock market on Reddit with one another. The group asked people to invest in Gamestop shares, as a way to prevent those who were shorting the stock. After a video from short-seller Andrew Left, who explained why the stock should be higher, many Reddit users invested which then caused the price to initially go up to roughly $140. It then went back down to about $70 but not soon after it began to rise again. This in turn caused it to receive more media attention which ultimately led to the price of $347 on January 27th. Other companies like AMC and Blackberry, that the Reddit group wanted people to invest in, also received attention which increased their share prices as well.
To get technical, the surge in pricing is due to short selling and short sequeezing. Short selling happens when an investor buys shares of a stock with the goal to sell immediately after, hoping the stock immediately goes down. And short squeezing is when specific stocks start to gain money, causing the investor to want to buy now, hoping that it rises, and they can sell later. Basically, investors want people to initially buy the stock so that they could see it rise in price, and then sell as they invested early. This is what happened in the case of Gamestop when people jumped on the bandwagon when the stock started going high, hoping it would continue to increase. This has caused hedge funds to lose massive amounts of money in stocks which also gained media attention. However, after this huge jump in price, almost all of the companies mentioned have gone back down in price. They do not go all the way down to their original price, but not to the high numbers they were seeing before.
One huge reason for the drop in price was due to stock trading apps like Robinhood who on January 28, 20201 made it impossible for people to buy stock for AMC, Gamestop, Nokia, Blackberry, and Bed Bath & Beyond. These trading apps were only allowing people to sell off shares, basically forcing the stock to go back down, as many began to sell fearing it would no longer go up. This caused anger from both sides of the political sceptres, like Donald Trump Jr., AOC, and Ted Cruz who all publicly condemned the app and encouraged people to leave it.
As of today, the stocks are still down from the initial surge price, but the whole situation serves as a great example of how a group of people working together can show up these big stock intuitions and the stock market. These “novice” stock market users were able to invest in companies that everyone considered to be failing and made them the most interesting stocks on the market.