A subreddit has shown the power of the people when it comes to the stock market. Realizing that a large number of hedge fund investors were betting on Gamestop to fail, the r/wallstreetbets subreddit rallied people to buy up and hang on to the stock. The move sent the value of Gamestop stock skyrocketing as much as 9300% from where it was on January 6th.
The unprecedented public purchasing of stock has spilled over into other companies such as AMC, Nokia, Blockbuster, and Bed, Bath, and Beyond.
The stock purchasing has grown so out of control that Robinhood, a consumer stock trading app has barred purchases of stocks like Gamestop, Nokia, and AMC. The backlash to the decision has been fierce, with people lambasting Robinhood all over social media and people calling for shorting the stocks of their partner companies. Other stock trading apps have been slowed to a crawl as people pour into the app to try and get in on the action.
For those not in the know, a short is when a client borrows stock and sells it with the agreement that they’ll buy it back later. Effectively, they’re betting the value of the stock will drop so they can keep the difference in what they sell and buy it for. However, many hedge fund investors are now on the hook to buy back Gamestop stocks at over 50 times what they sold them for.
Where this winds up is anyone’s guess. Already we’ve heard calls to bail out hedge fund investors, which might be the least appealing sentence I’ve ever typed. Unverified claims of insider trading and stock market manipulation have also been thrown around, but it remains to be seen what, if any, legal action could be taken against the so-called “Short Squeezers.”