“I don’t know if it’s the rebellious spirit in me… but a big part of [owning GameStop stock] at this point is just the sentiment behind it,” said senior Adam Lee, a student investor who bought the stock after being influenced by a Reddit post. “Also, this type of thing will probably not happen—hopefully not happen—again in my lifetime. As a person who likes investing, I think it just was cool to have the idea of being a part of it.”
Over the course of three weeks, a Reddit subforum called r/wallstreetbets grew from a little over a million to 8.7 million members as of Feb. 7. Since 2012, the group has become infamous for sharing risky investment ideas and sometimes for the huge losses of its members. East students like Lee, who’s been a member since March 2020, turn to the subreddit primarily “for entertainment,” but occasionally for investment advice.
Recently phrases like “TO THE MOON!” have hit all corners of the internet as the members of the subreddit narrowed in on buying heavily shorted stocks such as GameStop (GME) in an attempt to inflate the price. They hoped to force those who originally shorted the stock, primarily hedge fund managers, to buy their way out at a much higher price and raise GME’s value even more.
What makes this situation so unique is that the market changes are being led by retail investors, or non-professional investors like the average Reddit user or even East students, who trade on brokerage platforms such as Robinhood. While more numerous than institutional investors (hedge funds, insurance companies, etc.), they often have fewer resources available and can rarely influence the movement of a single stock. In the case of GME, these primarily retail investors, communicating through the ever-expanding r/wsb subreddit, launched the price from around $20 on Jan. 12 to a peak of $483 on Jan. 25.
What motivated some retail investors to purchase stocks like GameStop was the idea of redistributing wealth by forcing the wealthy hedge fund managers to lose money when they close their positions. These institutional investors were “shorting” GameStop; they borrowed shares in order to sell the stock immediately at the price it was selling it, under the assumption that the price would continue to plummet so that they could then purchase the stock back at a lower price. When they returned the shares to the person they borrowed them from by buying them back, the wealthy investors would financially gain the difference. By having retail investors raise the price of GME, the hedge fund managers would then lose money by being forced to buy back the stock at a higher price than they initially sold it at.
“It’s partially ‘stick one to the big guys,’ right? Like, ‘We’re gonna make these people lose billions and billions of dollars, just for fun, because we can, because the system’s broken,’” said senior Jay Baxley, who has been investing since 2016 with the support of his dad, but chose not to invest in GME. “But also their main motivator: money. Whichever way you look at it, money. Either people are investing to get money, or they’re investing to make people lose money.”
However, this sentiment of wealth redistribution isn’t perfect, as large amounts of money is required to invest in the stock initially, as well as the inherent wealth implied to have internet and a device to access a trading platform.
“To be a part of it, I had to just like, burn $600,” Lee said. “Which is probably also important to note that, for the most part, [most] people don’t have $600 they can throw away in honor of a movement that’s all about the redistribution of wealth.”
The primary trading platform for buying these shorted stocks is Robinhood, a commission-free investing app founded in 2013 that’s touted for its accessibility (over a quarter of users are first time investors).
“It was easy, and it was on my phone,” said Lee, who started out trading on Robinhood before transitioning to another online broker. “It’s an easy platform to use for people that are new to investing because everything’s straightforward.”
In the past two weeks, Robinhood has seen record app downloads. Over 600,000 people downloaded the app on Friday, Jan. 26. The surge in users as well as trading volume caused Robinhood to restrict trading on the highly volatile Reddit-fueled stocks, including Gamestop, AMC (the movie theater chain) and BlackBerry as the app struggled to find the amount of cash required by Wall Street to continue trading at such a high volume.
The decision to restrict trading on these stocks was met with massive pushback from Redditors and government officials alike, prompting over 30 class-action lawsuits against Robinhood and accusations of them selling out to hedge fund managers, as well as potentially a Securities and Exchange Commission (SEC) investigation.
“Robinhood is a flawed brokerage in that they have too many users and they don’t have enough liquidity,” junior Tyler Mead said. “So, it’s just not a very safe platform to have money in. I don’t think that they’re out to get individual investors and I do think that this will be ultimately bad for their business. But overall, they’re just a company that has grown too fast, and isn’t big enough to really manage the problems associated with that yet.”
While primarily driven by younger traders, with the average Robinhood user being 31, not all student investors have gotten involved in trading GME or other shorted stocks. This is largely due to the high volatility of the stock, making it a much riskier investment than some are comfortable with. As of Feb. 7, the stock stands at around $63, down almost 87 percent from its high.
“By the time I really figured out what was going on and understood, ‘Oh, GameStop is up 400-something percent,’ it was too expensive for me to invest in,” Baxley said. “And also, I knew it was going to go back down quickly. So I just decided it’s not worth my time.”
Other student investors rely on market fundamentals, recognizing how inflated the market capitalization is for a company that is only truly worth around $2 billion. One such student is junior Jake Boggs, who has been investing since seventh grade with the support of his dad. He decided to short the GME stock a week ago when it was around $300, because “it was going to crash, because it was too much optimism.”
Of course, since all of it was driven by social media, it’s no surprise that the pop culture ripples are being felt cross-platforms, either explaining the situation or making jokes about it, as seen in the TikTok by junior Emerson Krause. Trending on Twitter was the topic “DO NOT SELL” and TikTok comments with names of other shorted stocks to buy are frequent, creating an even larger influx of retail investors to keep the phenomenon growing.
On Twitter, Democrat Alexandria Ocasio-Cortez criticized Robinhood’s decision to restrict trading, and Republican Ted Cruz retweeted her tweet. The apparent bipartisanship on this issue has been surprising to many students, sparking some debate on which political ideals this event is portraying.
“I like bipartisan ideas, but it just seems like their views on the economy are way too different for them to be agreeing on actually the same thing,“ Lee said. “Either group of people can kind of latch on to the movement. And that’s also kind of what made it blow up, because you saw it everywhere for a little bit.”
As the dust begins to settle, the endgame position for GameStop and other shorted stocks, as well as Wall Street in general, is unclear. They may crash and return to their prior price, or they may retain their inflated value.
“I think the people who will get hurt the most are the retail investors. Most of the hedge funds closed out their positions,” Boggs said. “So, the people who are going to lose the most money are all of the people who bought in at the top, which were the little guys. It’ll hurt them a lot more than big banks and hedge funds.”
The widespread media attention has also driven interest in the stock market for students new to investing as well. Mead says he has had friends reach out to him who know he’s knowledgeable about investing.
“I’ve seen a few people who have come to me asking how to invest, how to make a brokerage account, and how to get it on this,” Mead said. “People will lose money because it’s a hard thing to do and it’s a risky thing. But I think overall it’s a good thing, that there’s a lot more public interest in investments.”
TikTok by junior Emerson Krause
