I N T E R N A T I O N A L – B U S I N E S S
Ahkyar Sahaba Reeham
Wall Street, located in the lower Manhattan section of New York City and home of the New York Stock Exchange (NYSE), along with being the headquarters of some of the largest US Brokerages, is notorious for either making people millionaires through stocks and bonds, or drown in debts. On the other hand, Reddit: The front page of the internet; famous for making things that were supposed to be a joke to be the talk of the town.
Read how a Redditor by the name of DeepF***ingValue and his bandwagon of Reddit army made a physical game selling company “GameStop”, which was about to come to a “stop” due to the pandemic season, struggling to compete with a digital video game economy that has made it easier than ever to download or stream a game without needing to buy a physical copy become one of the highest soaring stock investment of the season.
What is actually happening?
GameStop Corp., an American video game, consumer electronics, and gaming merchandise retailer which was constantly declining in sales due to their ever-growing competition with the digital game selling enterprises, saw a 2000% increase in stock in the early January of 2021 — making their stock price increase form 4$ to 470$ — which is uncanny considering the fact there has been no increase in performance from the company’s part.
Rather, some Redditors, at the expense of some hedge fund* managers, were able to propel the ever-increasing price of the stocks. Even before the pandemic, GameStop was struggling to compete with the digital video game companies and it took a turn for the worst when Covid-19 arrived and crashed the economy of the company completely.
“After seeing consistent losses and recently ending the search for a buyer, GameStop reports a loss totaling over half a billion dollars over the last fiscal year.“
Reddit’s influence to this sudden spike
Online platforms, especially billboards, have been in practice to share tips and tricks to increase stocks since the 1990s. However, recently with the ever-growing internet, the advertisements have increased greatly, spreading in all aspects of the internet. As such, it should not be shocking to know that there are subreddits in Reddit that give financial advices to the brokers.
Such a subreddit is the one named r/WallStreetBets where people are engaged in what’s called “day trading” or “retail trading”, which is generally considered very risky by people whose job is to give serious financial advice. However, it is riskier is to give money to the financial advisors who hoodwink you into emptying your pockets and leave you broke.
As the wealthy people are reaching to new heights of wealth and the poor ultimately becoming beggars or dying of a horrifying virus, retail trading, despite its side effects, is particularly alluring now; considering that you have a 50-50 chance of becoming something that is not poor or worsening your condition, thus seems like an opportune moment to beat the monied establishments at its own game.
At WallStreetBets, some users came to believe that GameStop stock is genuinely undervalued; as such, some users like one by the name of DeepF***ingValue recommended to buy GameStop stocks through his YouTube channel, where he goes by RoaringKitty (In real life, he is a financial advisor from Massachusetts named Keith Patrick Gill, according to CNBC.).
Hearing his words came the co-founder of a pet food startup “Chewy” Ryan Cohen who invested millions in stock in GameStop, becoming a member of the board of directors, thus also encouraging the users of the subreddit to short the stock*. Besides, positive media coverage that came with this news also helped grow the stocks of a dying company.
“Wall Street, meanwhile, was not nearly as optimistic about GameStop’s future in the coronavirus era, given its past performance. Some hedge funds, including Citron Research and Melvin Capital, had decided to short the company’s stock to make money for their investors, which is the whole purpose of a hedge fund. And people on r/WallStreetBets found out this was happening.”
Funny how Wallstreet, considered a place for serious minded people who use their intellectual skills to outsmart each other were outsmarted by a subreddit that started as a not-so-serious movement against elitism who defeated the creators at their own game.
How this affected various companies
Competing with the older well flourished stock sites are the new free-to-use apps that provide stock investing for free. Such an app by the name of ‘Robinhood’ which suspended any trade-in of GameStop, along with other “meme stocks” – AMC Entertainment, Blackberry, and Nokia as they had to comply with the rules set out by “Securities and Exchange Commission” for free trading of its users, which led to the users to call it to heart to not invest in stocks. So they posted negative reviews of the app in Google PlayStore and, for the first time ever, almost 1,50,000 negative comments were mass-removed, which surely didn’t present a positive review in front of its users. Other free stock trading apps did this as well. A cryptocurrency by the name “Dogecoin” went from a mere $58K to a whopping $6B in worth since this happened.
What will happen next?
The lawmakers are gonna ease it down gradually like any other Reddit movements (viz PewDiePie vs T-Series feud). However, it shows that some amateur guys can actually put a stop to people suffering for not being able to buy or increase their personal jets and boats through this (elite wealthy people).
TL;DR: Wall Street is rich and can control stocks; however, a bunch of amateur traders increased price of decreasing products by making online movements and buying a lot of it resulted the price reach an absurd height; for which Wall Street is mad now but the amateurs say they are making a point about aristocracy.
Hedge fund*: A hedge fund is an alternative investment that is designed to protect investment portfolios from market uncertainty, while generating positive returns in both up and down markets.
Stock shorting*: An investment strategy wherein one makes some quick money by betting against a company ― that is, betting that its stock price will drop.