• Bernhard Van Der Walt

The GameStop Saga - the Stock Market's David Versus Goliath Story

Amateur investors have defied all odds by bidding against major corporations and Wall Street, causing some of the world’s highest earners to lose billions of dollars, as GameStop becomes the centre of one of the most interesting populist revolts in recent years.

The 21st century has seen a rapid progression of changes across almost every professional industry. Technology and the internet have yielded a new digital age, seeing the likes of countless retailers and stores closing shop as online shopping becomes the new norm. Among the most impacted sectors of the economy with regards to digitisation, has been video game stores. Nowadays, video games are downloaded online via virtual stores, leaving video game stores with the inevitable fate of closing up shop. However, an American video game store, GameStop, has managed to defy all odds by becoming part of one of 2021’s biggest news headlines.

GameStop is one of the United States’ most popular video game retailers. Unfortunately, due to the aforementioned age of digitisation, it has lost most its market share to online trade. According to The Guardian, GameStop’s “stock plummeted from $56 a share in 2013 to about $5 in 2019.” The retailer was scheduled to close 450 shops in 2021.

Due to GameStop’s decline, powerful hedge funds in the United States decided to use GameStop’s demise to their advantage. In order to do this, they shorted its shares. A short, simply put, is a bet that an asset like a share’s price will reduce. Shorting has been used to generate huge profits in the past but involves quite a significant risk. If the manoeuvre fails, investors stand to lose heavily.

In the case of the so called ‘GameStop sage’, this is exactly what happened to career investors on Wall Street. In recent years, the social media platform Reddit has accumulated millions of followers on one of its online forums, WallStreetBets. The aim of this group is to serve as an investment discussion platform for amateur investors and inexperienced players on the stock market. In recent months, support to purchase GameStop shares grew rapidly and resulted in January’s shocking financial news story. Reddit users shocked the world by purchasing seemingly worthless stock in such large numbers that share prices rose to approximately $400 in a matter of days, resulting in a hedge fund called Melvin Capital Management to seek a rescue package.

GameStop shares rose almost 1000% in two weeks, a feat rarely seen on Wall Street. In addition, the ‘saga’ has amassed reach beyond the United States. Once the global market discovered the phenomenon, many foreign players contributed to the late surge seen in share prices. Ironically, despite the fact that hedge funds lost billions in the process, none of what happened is illegal. In fact, sympathy should be directed towards amateur investors, who were blocked from purchasing more shares by apps like Robinhood, that allow users to participate in the stock market.

Finance experts have predicted that GameStop’s unpredictable rise will eventually come crashing down, but for now, ordinary citizens who knew nothing about the markets have become millionaires overnight thanks to Reddit. Not only is this story important with regards to its financial implications, but it speaks to ordinary people’s frustrations with the one percent’s reckless playing of the stocks that ultimately end up impacting the working class. It remains to be seen whether GameStop’s populist revolt will spread to other failing companies, however, one thing is for certain, the ‘GameStop saga’ has certainly increased attention to the vital financial sector of the world’s economy.

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