One can never truly understand every angle, aspect or workings of the financial markets. This is not about stocks moving up or down or typical market conditions. It's about the advent of technology, social media and a highly dynamic environment which breeds neutral innovation that leads to newsworthy events. This is the unusual story of Gamestop, a nearly forgotten company brought back to life.
Gamestop fans versus Wall Street
Simply put, the case with Gamestop is relatively straightforward. Individuals on Reddit and more specifically, /wallstreetbets created an encouragement chain that focused on buying shares in this company. It was a rather unusual bet against large institutions and hedge funds who are more focused on the demise of this firm. The end result was a massive short squeeze that saw the stock move to an all-time high of $483. The move did not last very long and the stock came back down sharply.
Towards the end of the episode, trading became sporadic as many firms faced issues and some ceased trading on the stock all together. This created frustration as many beginner investors were torn between assuming this should never be the case and missing out on further opportunities.
Making money was an easy feat for those who got in early, closing their positions at a much higher price for a nice percentage return. Nonetheless, this attracted the less than equipped newbies who were tempted by a stock that at one point, looked set to continue exploding higher. Imagine telling your friend about a stock that went from double digits to close to $500 in days. At this point, psychology kicks in and they are thinking that $200 could be a cheap enough price to ride the next wave. Sadly, this never manifested until now.
Hyped stocks are rarely success stories
Aside from the potential profits, humanity has completely changed over the past year with the pandemic happening. A year ago, the world shut down, forcing millions to stay home and leading to a change in the way we work, interact and continue our lives. From a societal point of view, people are looking for new hope, possibly financially.
While some retail traders saw this as a way of overpowering the larger funds and their positions, it serves as a reminder that hypes do not create value. Furthermore, the lack of knowledge and skills can be financially devastating. Learning about the markets properly can teach you to invest with prudence and reduced risk.
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The content present in this article reflects the opinions and views of the author and does not necessarily reflect the position of CFI. The material published on this blog is provided for informational purposes only and should not be considered as investment advice. The Company is not responsible for the decisions and choices of the investor who has full and free will to take decisions that they see appropriate upon the investor’s sole discretion.