What in the world occurred on the stock market this late-January? Do Redditors run the world now? Also what on Earth does the term “meme stocks” mean? Why is GameStop poppin’ again? And is Robinhood robbing the hood?
We have the answers…
The first month of 2021 has turned into a full-fledged sequel to Wolf of Wall Street, thanks to Redditors on r/wallstreetbets.
Companies like Gamestop, AMC, Nokia, and Blackberry are rising into the mainstream financial conversation because of r/wallstreetbets manipulating the market and increasing the stock prices of each company.
Let’s get into what exactly happened over the last few days with these “meme stocks.” And how creatives can protect themselves in investments during this time.
So what happened with these meme stocks?
The markets for Gamestop, AMC, Koss, and many others are volatile at the moment. Meaning that the prices are fluctuating at a rapid pace, thus making investment predictions difficult.
Gamestop sat at about $18 per share three Fridays ago but has since doubled in four days. The Redditors on the “WallStreetBets” page have been encouraging each other to buy GameStop shares in order to push its value.
It’s a clear manipulation of the market because anyone in the gaming mainstream knows that Gamestop has been a failing company for years and has been steadily losing money over time.
For some companies that were on the verge of bankruptcy like AMC, these recent actions may have saved them. And it’s all due to the power of the people and their investments into these meme stocks.
Like a modern-day proletariat vs. the bourgeoisie.
The short squeeze
According to Investopedia, a short squeeze can be defined as:
A short squeeze occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall, to buy it in order to forestall even greater losses. Their scramble to buy only adds to the upward pressure on the stock’s price.
Most hedge funds were betting on GameStop’s stock to fall by going through a process called “shorting,” where investors borrow shares and immediately sell them in the hopes that they can get them again later at a lower price.
This of course has backfired for them due to the market manipulation by Redditors, which encouraged much of the internet to buy into GameStop and the other companies to sell their shares off quickly and make some money.
Still, the GameStop boom was just as unexpected as the losses were for the hedge fund billionaires…
Robbing the hood…
Hedge fund investor Leon Cooperman puts the billionaire’s perspective on this situation plainly.
And that’s how many wealthy investors feel. Still, this prompted a response by popular investing app “Robinhood” to take action.
“Robinhood” for a period of time blocked the sales of stocks to these skyrocketing companies. This was in order to slow down the market and bring balance again for wealthy investors.
The result was an outcry from people upset that the market was blatantly manipulated against them. And then this recently led to a class-action lawsuit being filed against “Robinhood.”
This action by the company is even prompting political figures on both sides of the aisle like progressive Democrat Alexandria Ocasio-Cortez and Republican Ted Cruz to agree on investigating why this action was done in order to inhibit the free-trade market.
Robinhood has since reopened the ability to buy into these meme stock companies like GameStop. But for a company that prided and marketed itself as a place for the every-man to get into stock trading, the damage is already done.
So what should creatives do?
A lot of people have gotten into the stock game over the last year. If you were able to get into these surging meme stocks early on and flip them for profit, then great for you.
For everyone else, don’t fall into the temptation to invest in these GameStop shares. More and more each day this situation is presenting itself as a bubble that will inevitably burst.
The safe bet is to always invest in companies that are profitable or also have the true potential to be. Research their quarterly earning reports and more into the background of a company before you invest. There’s never really a good time to invest in failing companies.
The choice is up to you. But it’s always better to take smarter risks rather than just any kind of risk.
And try not to rely on only a short squeeze, the trends on wallstreetbets, or what redditors might have some luck in predicting. Good luck!