By Charlie Hobin, Staff Writer
Like many other teenagers over the past year, my friends and I made the transition from winning Fortnite games late into the night, to waking up at 6 AM live chatting about stocks while looking at charts, making trades, and scrolling the infinite pages of Reddit looking for the next big trade.
One morning in Mid-January, as we were talking on Discord, we noticed the stock GameStop was skyrocketing, nearly doubling within the last 24 hours from $30 to $50 a share.
We had seen the thousands of people hyping up this new trade within the last week on Reddit, but never expected this spectacular jump. Spending the next several hours researching this stock, we began to comprehend the short squeeze about to occur and the potential for exponential gains.
A short squeeze occurs when lots of people, in this case big hedge funds—large wall street investing firms—bet money that a stock price is going down. In the case that the stock price continues to go down, they make money but in the scenario that the stock begins to rise, the losses are infinite.
Luckily, my friend and fellow investor Jackson Bailey and I saw the squeeze from a mile away and, through some screaming and arguing over the phone, we both decided to throw some money into the GameStop bonanza.
As the losses compounded through guys like us dumping cash into the stock, hedge funds were forced to purchase millions in shares and bet on the stock going up through call options as a kind of insurance to keep the firm from going bankrupt.
This is when the squeeze was ‘squoze’. As the firms in New York bought up all the shares and call options, the stock began to skyrocket bringing in more investors which pumped it up even higher.
This all out battle between the wealthy wall street suits and average ‘retail’ investors of Reddit lead Gamestop to becoming the most heavily traded asset for 3 days in a row with over 50 billion dollars worth of the stock switching hands every day.
Although the gains were magnificent for many and the losses catastrophic for others, the Gamestop squeeze represents a significant moment in the history of finance and a critical event for the future of investing. Gamestop represents a further puzzle piece in the democratization of mass financial institutions and breaking the elitist culture of the financial world.
“When we saw this stock beginning to get loads of hype on Reddit like nothing we’d seen before, we knew it was something special,” Bailey said.
Fortunately, along with myself, Jackson saw the future of this stock in the beginning and saw the massive opportunity for gigantic returns. After some research, we each threw a decent amount of capital into the company to see what would happen.
“Gamestop changed how I see the stock market forever, nothing to this magnitude has ever happened before and It makes me proud to see wall street getting screwed over for once rather than the average american people,” Bailey said.
As the short squeeze hit news stations and social feeds across the globe, the reddit group r/wallstreetbets grew by the millions each day to nearly 10 million members. Gamestop continued to soar to new heights and we were making more money than we ever could’ve imagined.
Luckily Bailey and I sold our positions at the right time. Still, more than a month later, the momentum of Gamestop continues—It is now over 3000% more valuable than it was last summer (down from it’s all-time high of 10,000% in January).
Although the profits were significant for many and the losses disastrous for others in Manhattan, the Gamestop squeeze represents a significant turning point in the history of finance. For the first time, the suits began to fear the amatuer investor, millions of young people jumped into the market, and we all saw the power of Reddit’s Wall Street Bets community turn into a decentralized hedge fund of sorts with potentially more influence than big Wall Street banks.
There have been many moments throughout history where the stock market has reflected the state of the world such as the 2008 housing crisis, the 2001 internet bubble burst, or the great depression. The Gamestop situation and the massive run up although not as influential, is a defining moment in finance, showing us when enough average Joe investors get together, they have the ability to screw over some hedge funds and turn stocks into a Vegas casino floor.
“You see there is a difference between gambling and investing, good investing is not necessarily meant to be exciting or fun by any means. It is rather drawn out and boring, the moment it feels like riding a rollercoaster it might be time to leave the amusement park,” said Brian Fleck, Senior Vice President Financial Advisor at RBC wealth management and Summit Parent.
This euphoric ‘amusement park’ is what many long time wealth managers and investors are afraid of. Many feel that this bull market (meaning it only goes up) feels far too similar to the euphoria of 2001 with a crash imminent in the near future.
“There are two markets currently, the casino of Gamestop, Reddit, and Robinhood and the solid growth market of companies such as Starbucks, Apple, and Amazon. When done the right way, one can do well in each category, but it is important to understand where your money is going and to act like you are an owner of the company and not a gambler.”
Fleck does extensive research on companies prior to making an investment and plans to own shares for long periods of time utilizing the power of compound interest.
“It is remarkable to see the power of social media and the impact on the stock market, but this is no different from the gold rush of the 1800’s or the internet bubble of 2000, I am thrilled to see new investors joining the financial markets at such a young age, but I hope they don’t begin to view it as a get rich quick scheme, lose 80% of their portfolio, and leave the market forever” Fleck said.
The reality is that the casino aspect of the stock market will not go away anytime soon, and it is not necessarily a bad thing when people understand the risk of certain trades. The further democratization of the stock market through the excitement of GameStop will remain an important part of history for years to come, opening doors for new investors and fueling the economy as a whole. I don’t plan to have a future in this gambling-esque stock trading as I may end up ripping all of my hair out, however I am excited for Gen-Z’s role in the future of financial markets and expanding the opportunities to financial freedom.