The Gamestop stock has become a case study. Georgetown University dealt with it in a conference entitled “Power to the Players? Free Speech and Finance on Wall Street and Main Street’, which was held on March 15th.
It is worth remembering why Gamestop shocked the world of stock markets. The company was in a deep crisis, unable to react to the technological turnaround and the advent of digital. Some hedge funds were ready to short the GME stock, a move noticed by a group of retail investors who met on a Reddit forum, WallStreetBets. They decided to buy shares of GameStop en masse, triggering what is known as a short squeeze. The moral of the story is that the price went through the roof and the hedge funds racked up billions of dollars in losses in the space of a few hours because they were selling shares they didn’t have and which had gone up in value.
The affair even ended up in the US Congress, where the CEO of Robinhood, the app most widely used by young retail investors in the US, will also be questioned, accused of making trading almost a game.
Gamestop stock, lessons for the market
The consequences and lessons learned were discussed in the panel at Georgetown University.
Felix Salmon, chief financial correspondent at Axios, compared the story to a meme:
“The WallStreetBets crowds on Reddit started coalescing around GameStop and realized that it was heavily shorted and realized that if they just kept on buying it with all of their stimmies, their stimulus checks, then it would go up,” Salmon said at the event. “That’s the new game. It’s called playing meme stocks on the stock market”.
In fact, the whole thing seemed like a giant hoax, a meme of the kind that makes the web laugh, an imitation behaviour of big investors. But it is precisely the big investors who have ended up under attack.
The reason is that WallStreetBets was the place for young people in crisis as a result of the pandemic, who may have chosen to use the financial aid they received to invest it on the financial market, using a common app that they could download onto their mobile phones.
But according to the panellists, it would be an exaggeration to say that the WallStreetBets people manipulated the market.
Jennifer Schulp, director of financial regulatory studies at the Cato Institute explained:
“It’s definitely become part of the public consciousness that we think about this as a little bit of a rebellion of the little guy against the big guy”.
The goal of WallStreetBets was to go after the hedge funds that were shorting GME. But, explained James Angel, associate professor at the McDonough School of Business:
“An overpriced stock is nobody’s friend. The short sellers are actually doing everybody a favor by preventing more misvaluations”.
All this has been possible thanks to a change in stock market participants too. Jennifer Schulp notes that the number of retail investors has increased over the past year, but they are also younger, more ordinary people.
It is in this sense that we can say that the Gamestop case has made the stock market more democratic, showing the big investors that there is a segment of people who, although inexperienced and with little capital, should not be underestimated.