GameStop was not a part of my childhood. I missed that console gaming Ship by being raised in a female-centric household. But it did hold a place in my dad’s heart, who still subscribes to GameStops Informer Magazine.
As the GameStop stock price drama unfolded over the last week we had been talking, on-and-off about GameStop and its skyrocketing stock price for days, and, as a non-investor, I’d been trying to understand what happened for almost a week.
The short story is this. GameStop is a video game retailer once popular in malls across America that has been dwindling in foot-fall traffic and revenue for years. The stock has been going nowhere. It’s possibly also a target of stock market shorters, those who borrow stocks at one price, sell them at a lower value, and pocket the difference from the lender. They’re betting on failure and reaping the profits.
By the way, this does a great job explaining the entire fiasco:
Meanwhile, on a subreddit called WallStreetBets, people started talking about GameStop stock (along with other grappling retailers and old-school companies like Blackberry) as an unrealised door of opportunity. They may also have been looking to hurt short-ers and hedge fund managers who, some claim, treat the American economy like it resembles a Monopoly board where only they know the rules.
The Reddit-ors started buying up GameStop stock, apparently through the Robinhood retail stock trading app, and sent the price soaring.
In early January, GameStop was trading around $18. By close on Wednesday, it had reached $364.15. this didn’t seem like a sustainable situation. Stock jumps are usually tied to some sort of news: new products, revenue reports. income statements, acquisitions, the potential of being acquired. None of that was happening with GameStop.
There’s no way that the stock could be worth this much. What would an informed buyer pay for the entirety GameStop’s business? I assure you the answer is significantly less than $14 billion. The company has no competitive edge — there’s nothing that it can do that Amazon, Walmart, Target, or Best Buy can’t do way better.
So the Wall Street shorts have a point. There’s no reason at all for the stock to be this high. And at some point, when everyone has moved on to the next fad, they will ultimately be proven right and the price will fall.
Fundamentals Currently Don’t Matter
But right now the problem for the shorts is that nobody cares about GameStop the company. It’s become a movement. When traders look at GameStop, they don’t think in terms of income statements and balance sheets. Rather some see a once in a lifetime opportunity to make f*ck you money while others see a rare chance to stick it to the rich.
But to all the retail investors clenching their bottoms to GameStop shares and options, GameStop represents that rare chance to both be a part of something bigger and optimistically make some cash while doing it. In that regard, it’s a lot like Bitcoin
Those that dismiss this surreal rally as a passing fad or an injudicious meme are missing the point. There are multitudes of people who are disconsolate and see GameStop as not only a way to rocket up and out, but also as a way to eat the rich that they believe to be oppressing them.
A REVOLUTION
The truth is the ticker doesn’t matter, neither does the actual underlying business behind it. This could have been any other highly shorted stock. Retail investors needed a symbol to rally behind and GameStop happened to be in the right place at the right time.
Whereas past trends such as Bitcoin were an indirect expression of with wealth inequality and the get out of jail free cards that the top 1% seem to receive over and over again from the government, GameStop is revolutionary for its directness.
Every 1% increase in GameStop’s share price further encourages and enriches the everyday man whilst simultaneously driving millionaire hedge fund managers closer to bankruptcy. That’s something that the average American can get onboard with, and come onboard they have.
There’s also some real anger from some,
And then there are the early birds..
SO WHAT NOW
When something is simultaneously the symbol of John smith and also the tool to screw over the wealthy, all logic and analysis ceases to matter. For now.
But all bubbles burst. Even ones as jaunty as GameStop. The catalyst could be any number of things — a massive cashing out, GameStop deciding to sell a bunch of shares to raise money (which management really should do if they want the company to survive), etc. Or the bubble could simply finish running its course — the shorts get squeezed, the retail power gets exhausted, and the valuation simply gets too high.
Financial gravity can be suspended for a short amount of time. In the meantime, this is probably the most fascinating and surreal financial event that I’ve ever witnessed.