When it started to attract major media attention this week it had the trappings of a novel business story that could only happen in America and only on the internet.
A legion of armchair “retail” investors, connected through the Reddit message board r/wallstreetbets, have thrown their collective money behind maligned video game store chain GameStop, launching its stock price into the stratosphere. GameStop shares went from being worth less than $18 apiece in early January to more than $483 at one point on Thursday.
The little guys stuck it to the big guys. Hedge funds that had placed heavy bets that GameStop Corp.’s market value would fall — known as “shorting” the stock — took huge losses as the price rose and had to get in on the buying frenzy themselves to provide cover.
“These traders on Reddit, they just realized that this is a stock that is very undervalued and has been pushed down by short options,” 34-year-old Longmont resident Alex Mulvaney, the owner of roughly five shares of GameStop stock and a regular visitor to r/wallstreetbets, said Thursday.
By Thursday morning, the story took a more sinister turn in the eyes of investors.
Popular free trading platform Robinhood and other brokerage services that cater to retail investors clamped down on investments in GameStop and other so-called “meme stocks” like AMC Entertainment, Bed Bath & Beyond, Nokia and Tootsie Roll following cries for institutional investors and pundits about market manipulating. As of Thursday night, investors on Robinhood were only allowed to sell their positions in GameStop, not open news ones in some cases.
Robinhood said limited buying would open up again Friday but the damage to the company’s reputation and to GameStop’s stock price, which closed at $193.60 Thursday down from $347.51 Wednesday, was done.
“I’m furious at the system. We’re no longer in a free market basically,” said Matt Watkajtys, 32, of Denver. “You know the game is rigged.”
Watkajtys owns one share of GameStop. He bought it for $4 in April. The web developer didn’t even believe it was a good buy at that time. He couldn’t think of anyone who had shopped in one of the company’s stores in years. But he bought it out of curiosity and to go along with a r/wallstreetbets ride. It’s been anything but boring.
With platforms like Robinhood freezing buying on Thursday, the market essentially popped whatever bubble had formed around GameStop artificially and doomed investors who got in late chasing the big gains, Watkajtys said.
“That was my fear from the very beginning,” he said, “people making dumber and dumber decisions, putting money they couldn’t afford to lose into it because it just seemed like a chance to break out.”
Denver’s Matt Moore, a 29-year-old tax consultant, bought into GameStop earlier this week when its price was $100 per share and has since doubled his money.
“A hedge fund is going to find a way to win no matter what, so if I can find a way to make some money on the side great,” he said.
What Robinhood did Thursday amounts to false advertising, in Moore’s eyes. He filed a complaint with the Securities and Exchange Commission. He does not expect the company’s planned Initial Public Stock offering to go well after that maneuver.
“I don’t know what went on in the background to make them think that was a good business decision on their part,” he said.
Mulvaney is like Watkajtys and Moore, a hobbyist trader with a full-time career to pay the bills. But that doesn’t make him any less mad about how market powers moved to swat down GameStop investors Thursday amid a global health crisis that has been a boon to billionaires. He thinks back to when the market was falling to pieces during the 2008 housing crisis.
“They didn’t pause shares for retail investors then. They let us get fleeced,” he said. “(Thursday) was just the epitome of us taking our own financial destiny in our hands and seeing how quickly and effectively we get squashed.”
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