There has been a lot of buzz and controversy around the video games retailer GameStop. Similar to Blackberry, the retailer’s stock price jumped by approximately 350%. This jump or should I say take-off in the stock price made a lot of people want to invest in GameStop. However, is it right to invest? And should you invest in GameStop?
The brick-and-mortar retailer’s stock was sitting at $2.20 in April of last year, and it surged to almost $380 on Wednesday, the 27th of January 2021. This has increased the retailer’s valuation to $20 billion, a fourteen-fold increase, compared to a month ago. The increase in GameStop’s stock price was actually fuelled by a Reddit frenzy. Many ordinary investors, like you and me, went on Reddit and encouraged others to invest in GameStop. The goal of this campaign was to squeeze out the short-sellers – investors who bet against a company and are rewarded when the stock price falls.
In this case, the short-sellers are hedge funds that have bet against GameStop. Therefore, a war was taking place between ordinary investors and hedge funds. The more people invest in GameStop, its stock price increases, and in turn, the short-sellers (hedge funds) lose money, this is the formula. The war has expanded to include investment brokerages too. In the midst of the retailer’s stock price surge, investment brokerages like Robinhood have denied people from investing in GameStop and earning money. As a result, people were frustrated because Robinhood was siding with the big guys – hedge funds.
Many people have taken on the “frenzy” and have invested in the retailer. Are you thinking of investing too? Should you invest?. If you happen to be a billionaire, then yes go ahead and invest, because you have nothing to lose. Because the fact is everybody invests based on their investment risk. If you have a lot to lose then investing is risky but if otherwise is true, then it doesn’t matter. For ordinary people, it is very risky to invest. Watching GameStop's stock price increase is very tempting, but you have to make an informed decision. Institutional investors for example have far more information than ordinary investors, and I don’t mean information about the stock market only, but also about the company itself.
References:
1) Denham, H., & Shaban, H. (2021, January 29). What you need to know about GameStop's stock price chaos. Retrieved January 29, 2021, from https://www.washingtonpost.com/business/2021/01/28/gamestop-stock-amc-reddit-faq/
2) Wells, C. (2021, January 27). Should You Buy GameStop? A Guide for the Uninitiated Investor. Retrieved January 29, 2021, from https://www.bloomberg.com/news/articles/2021-01-27/gamestop-gme-should-you-buy-hyped-reddit-stocks-amc-express-expr-bbby-bb
Great article. What’s happening in the market is unprecedented. I wonder how the big investors will take revenge on the retail investors now.