What’s happening to GameStop’s stocks?

GameStop stocks are amongst the most short-sold stocks on Wall Street, with many analysts seeing an end to brick-and-mortar gaming stores. Game sales are moving online, and the COVID-19 pandemic is accelerating that trend. Investors believe that GameStop is doomed to fail, so why is GameStop’s at an all-time high? 

At the start of this year, GameStop’s stock traded for around $18, and tonight it trades for around $350. Does the make sense? The short answer is no, and the long answer would need to explain the concepts of stock manipulation, economic bubbles, and the concept of “shorting” stock. Investor groups on Reddit are currently pumping GameStop’s stock, which is the current reason for its skyrocketing value. 

A lot of big-name investors are losing millions, as their short positions on GameStop stocks are due, and GameStop’s stock value is at an all-time high. 

What is a short? 

To oversimplify things, a short is when an investor borrows a stock from a creditor and promises to give it back in the future. Once their stock is secured, it is immediately sold, with the short seller hoping that the stock’s value will drop so it can be repurchased and returned to their creditor. If the value of the stocks they are shorting goes down, they make a profit. If not, they stand to lose a lot of money. 

What does Reddit have to do with this? 

The WallStreetBets subreddit has been uncovered as a group behind GameStop’s rising value, with amateur investors fighting large hedge funds’ short positions. GameStop’s rise has seen many investors call for the SEC to get involved, with many calling this action stock manipulation while others don’t see things as clearly. 

For many of the people who have invested in GameStop, the goal is not to earn money; the goal is to battle against Wall Street’s short sellers. Keeping GameStop’s value high will cause many short sellers to lose money, with some seeing this as a generational fight that moves money from the rich and into the hands of the poor. Some of these GameStop buyers might even get lucky and earn some money from this stock battle. 

If this all sounds crazy, it’s because it is

The value of a stock is defined by how much people are willing to buy it for. While stocks and shares can be used to make a lot of money, stock prices can be manipulated, and stock prices can plummet. GameSpot’s stock is currently overvalued, and some people will lose a lot of money once GameSpot’s stocks return to more reasonable values. 

At some point, this bubble will burst, and GameSpot’s value will plummet to the earth. How long this will take remains to be seen, but it is hard to see things ending well for those involved, be it GameSpot’s short-sellers and the buyers who are boosting the company’s stocks. 

I will end this article with a comment from Deutsche Bank strategist Jim Reid, as made to the BBC. “These are not normal times, and while the [Reddit] thing is fascinating to watch, I can’t help but think that this is unlikely to end well for someone,”

  
You can join the discussion on GameStop’s crazy stock value on the OC3D Forums.