At the beginning of the year, not many people were paying attention to GameStop. Its business of selling video games in retail stores looked increasingly shaky as the market shifted ever more online in the grip of the Covid-19 pandemic. GameStop’s seemingly grim prospects led Wall Street hedge funds to take out big bets on the company’s share price falling further (known as short selling) but they had not reckoned with a force that was about to blow them away. Users of the Reddit messageboard WallStreetBets began grouping together to buy huge quantities of GameStop’s stock, driving the share price higher and higher and inflicting huge losses on the hedge fund titans.
Desmund Delaney tells Rachel Humphreys that as part of the Reddit community he was tipping shares in GameStop back in 2019 and took his own advice investing in the company, despite the derision of other users. But he gave up on the company last year while its share price was below $10 and cashed out. If he’d sold last week he would be sitting on half a million dollars.
Economist Dan Davies explains that while the phenomenon of an online community-driven stock market bubble feels new and exciting, it’s a story as old as the markets themselves. A group of investors egg each other on to speculatively jack up the price of shares they are holding – only for the whole thing to come crashing down. In the case of GameStop, it may have burned some incautious hedge fund managers, but the steep decline in the share price this week has proved to be a sharp lesson for amateur investors who didn’t sell up before the crash began. Are online forums a new force on Wall Street? Or are the odds still stacked too steeply against them?
Photograph: Dado Ruvić/Reuters
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