University weighs in on recent jump in “meme stocks”

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Photo by Katerina Pourliakas

GameStop stock has been a recent topic of conversation

Two weeks ago, an extremely large group of independent investors took the New York Stock Exchange by storm, and it all started with a dying company.

Video game retailer store GameStop had gone public in February of 2002 at just barely $10 a share and fluctuated between highs and lows for a decade until the COVID-19 pandemic hit in early 2020. As a result, the whole market crashed.

The pandemic hit the retailer hard. The shift from brick and mortar stores to online shopping was reforming the American economy, combined with the financial effects of the pandemic, the company was gut-punched. This was even after keeping their doors open as an “essential business” during the pandemic.

As a result, hedge funds on Wall Street saw an opportunity to “short,” or bet against, Gamestop in its downfall. This would allow for quick profit as the company continued its downfall in the stock market.

“If the price is falling, they win. If the price is going up, they lose,” James McGibany, an associate professor of economics, said. “Because then they have to buy it back higher than what they ‘borrowed’ it at.”

Assuming everything went to plan, the hedge funds leaned on the stock to drop and come out with a profit.

Or at least, that’s what would’ve happened.

At the beginning of the year, GameStop hovered at just $17.25 a share and was expected to continue to fall. However, large masses of individual investors started buying the stock while it was cheap. As a result, the stock price increased to $347.51 a share — at its peak — in less than a month. The gain was around almost 2,000%.

But these individual investors weren’t a part of any hedge fund or bank. Instead, they were all a part of the trading subreddit, /r/Wallstreetbets. Users have posted their gains on the subreddit showing that some have made hundreds of thousands of dollars in just a matter of days.

Wall Street analysts were flabbergasted, to say the least, and a new type of stock was dubbed, the “meme” stock.

While there are many motives behind why the stock had a sudden takeoff, Nick Artinian, a junior in the College of Communication, said some people took this as an opportunity to “stick it to the man.”

“One of my friends was the one who put me on to it,” Artinian said.

Artinian himself never got to invest in GameStop, but still took part in another stock at the time: Nokia.

“I only got a $5 profit … I didn’t know how much more profitable it was going to be,” Artinian said.

Artinian has been in the stock market for about a year. He started off by investing small amounts of money and has worked his way up to being able to buy afford larger shares, without taking as much of a risk. But the large Reddit movement changed his investing philosophy for the moment.

“It’s the sense of community, that’s really what gets people in (the stock market),” he said. “It sort of makes investing like a team sport.”

Artinian also said the future is bright for cryptocurrencies, a new type of digital currency that can be used to exchange goods and services like Dogecoin or Bitcoin, to make upward moves because of mass individual investments like GameStop.

“I do think that cryptocurrency is going to be something of the future,” Artinian said. “With billionaires like Elon Musk promoting that stuff, it’s only going to get bigger and bigger.”

Elon Musk has tweeted out his support for cryptocurrencies multiple times over the last few weeks. He tweeted that the currency is going to go “to the moon“, slang for a high jump  in a Feb. 5 tweet.

But Stephen Cole, an associate professor of economics, said the odds of such an anomaly stock rapidly rising again are very low.

“It could happen again, but I’d say … it’s more of a one-time blip,” Cole said. “I wouldn’t bet on it being like a permanent thing unless some other news happens.”

This story was written by Benjamin Wells. He can be reached at benjamin.wells@marquette.edu