How did Gamestop stock go from $4 to $347 in exactly 12 months – even though they had net losses of $400m last year alone?
Gamestop Stock NYSE:GME • Hedge Funds • Elon Musk Gamestonk Tweet On Twitter • WallStreetBets Reddit • Robinhood halts trading of Gamestop and other stocks • Big Short Michael Burry Short Selling
What a crazy few days on the stock market.
Gamestop has been in gradual decline over the past few years on the stock market. It has $673B in net losses in 2019 and $471B in net losses in 2020. How can a company that’s losing money at a rapid rate for a sustained period possibly have it’s stock shoot upwards.
That’s where the internet comes in. After members of the Wall Street Bets reddit channel started placing some early bets (including user DeepF***ingValue who invested $700k and turned it into literally $47 MILLION at the time of posting) it started getting momentum for redditors to start buying more and more Gamestop shares.
Many wanted to send an F U to big hedge funds who many believe have been manipulating the market for years to their own advantage.
The group gained even more momentum when Elon Musk tweeted “Gamestonk!” to his 40,000,000+ followers on Twitter.
As with any time Elon tweets about a company – the stock prices went absolutely crazy.
They shot as high as $347 a share (from $4 a share a year ago) and made 3 of the biggest shareholders literally billionaires overnight – even if it will be short lived.
Hedge funds like Melvin Capital lost over $2bn apparently – requiring them to be bailed out to the tune of $2.75bn by Citadel & Point72 Asset Management.
Then controversially the trading app Robinhood halted all buying of Gamestop shares (due to ‘market volatility’ – something that instantly enraged the internet. If they could only sell, then their only option was limited to reducing, not increasing the stock price. And why does it seem like they only halt things when it’s hurting the big players? (who apparently help bankroll their service)
All of this begs the question – is the market rigged against us like a casino?
Are we only allowed to win as long as the big boys make more than us? Are retail investors only welcome when they lose their money.
I’m sure more will unfold over time, although it’s certainly brought more awareness to how the cards are not stacked in the everyday person’s favour.
Let me know what you think – is this BS? Are the redditors artificially and illegally pumping the stock? Who’s in the wrong here? What do we do about it?
Okay, guys. In this week’s video we’re going to be talking about GameStop and the most ridiculous saga ever. How does a stock go from being worth $4 a year ago to being worth 86 times more? That’s $347 a year later, even though the company is actually losing money, hand over fist. It lost in 2019 had a net loss of $673 million. And in 2020 it lost $471 million. So the company’s going so bad. Why is the stock going up so dramatically? All of that and more is going to be unpacked in this week’s video.
In this video we’re going to be covering in GameStop, what’s happened so far, all the different celebrities that have chimed in, what’s happened with this Reddit, this has gone bonkers, what has happened to the hedge fund managers that have basically been owned by a bunch of people on the internet which is kind of hilarious, and where do we go from here? And what does it say about our financial system, and is this whole system rigged against us?
So firstly, what is this stock? What is the company GameStop? For those of you who don’t know, GameStop is a retail video game store where you can go and buy video games. A lot of people liken it to Blockbuster, that it was very, very popular at a time, but has been on the decline for a number of years now. And they’ve been selling video games in the retail stores and they have thousands of retail locations across the states. However, they didn’t really adapt, just like look Blockbuster, and for them to be moving online, they were quite slow to get to that. And the company has suffered as a result.
And as I said before, the company has been losing a lot of money every single year, especially like the last couple of years, especially. In 2019, they lost about 600 million, and then last year they lost about 400 million. So it’s not going great for them. They’ve been on a gradual decline over time. And basically what’s happened is a lot of these hedge funds have gone, “We think this company is basically going to go bankrupt and it’s going to heading downwards, and as a result, we are going to short this stock.”
So normally with stocks, you would buy them low and aim to sell them high as the price of that and the value of that company goes up. So the way short selling works is you borrow shares for a fee. Then you sell them at market rates. Then hopefully the price goes down. And then once the price goes down, you buy back and then you basically pocket the difference. Then from there, you return the stock to the lender and away you go.
Now in theory, this works really, really well if the stock goes down as you anticipated. However, if it doesn’t go down and actually goes up, you can be in a lot of trouble and you can lose a lot of money. And basically there was a whole bunch of big hedge funds, including Melvin Capital, Point72 Asset Management, and Citadel and a whole bunch of other big players all saw the writing on the wall for this company and shorted this particular stock expecting it to go down. However, that’s in an ideal world. However, 2021 and the internet had other plans.
So basically what happened was there is a channel on Reddit called wallstreetbets which has got about 2 million people in it. And that’s actually ballooned out to like 5 million plus in the last few weeks. And basically what they do on there is kind of, people make a lot of jokes and it’s very, a lot of silly stuff and people talk about different investments they’ve made and that sort of stuff, a lot of banter and silliness going around. Now, what they planned to do was there’s a couple of people, early posters, that basically said that they were actually going to bet, put $50,000 on buying GameStop stock. And there’s a number of people that started buying some stock and a lot of people were basically saying that the writing’s on the wall, everybody thinks it’s going to go down. However, here you are saying it’s going to go up.
Then it started to get a lot of momentum with all these different people in the community actually going, “You know what? Let’s support GameStop and let’s basically say screw you to all the hedge fund people that think it’s going to go down. And if we get enough people together and enough money together to bet on GameStop going up, then it will go up and we will screw the hedge fund people and they will lose a lot of money because everybody currently hates rich people.” And I think everyone’s a bit sick of them manipulating everything to their benefit. And it was kind of like a power to the people moment.
And all of this went bonkers even more after it started getting some momentum. The stock price actually started to creep up a little bit, not too much, but a little bit. And I think some of the short sellers got a little bit nervous because they had a lot of money banking on the fact that … literally billions of dollars that it would go down. But that didn’t happen. And more and more momentum happened around supporting GameStop and buying their shares. Their shares started to creep up and up and up.
But then it started to get ridiculous when Elon Musk actually tweeted Gamestonk as a bit of a joke and linked, hyperlinked to the wallstreetbets Reddit thread or channel. So then from there, as you know, anything that Elon Musk tweets, it’s pretty much going to go bonkers. And it did. And the stock went absolutely crazy. It went from literally being a year ago, like not even, not five years ago or anything like that, a year ago it was $4 a share. It got as high as $347 a share and it’s fluctuating like crazy as of right now. So by the time this video goes live, it’s probably changed a hundred more times after that.
From here, a bunch of the people on Wall Street and all the hedge fund guys were all basically just having a big cry because they were like, “You guys can’t do this. This is market manipulation. You can’t do this.” And ironically, a lot of people are fighting back saying, “Well, this is kind of what you guys do with through CNBC and all these big news networks. You kind of push an agenda to suit whatever’s going to make you the most money, either speaking highly or speaking poorly of a company so that it can go a certain direction that makes you money.” So a lot of people are saying, “Well, this is basically what you guys do. Why can’t we do it?”
Then the plot thickens even more because Robinhood, a number of other trading apps, but Robinhood especially it’s one of the bigger ones, they actually had a trading … they would not let you buy stock for GameStop. So as a result, they would only let you sell. And basically the internet was outraged after this because they were like, “What the hell is going on? How can you do this?” And obviously, if people can only sell a stock, then it can only go down, which obviously helps the hedge fund managers side of things a lot, lot better.
Then people started to uncover or realise or make the connection that some of these big hedge funds actually they’re connected to Robinhood and some of these apps and they kind of pay, some people were saying that Robinhood is owned by them. Others are saying that they just make money. They have a relationship where they pay them for access to certain market data. But either way they have some sort of connection, allegedly. Don’t sue me. But they had this connection. And that a lot of people on the internet are basically saying that, “You guys, Robinhood is bankrolled or partially bankrolled by these guys.” And as a result, they’re basically saying that then they’re going to manipulate things to make sure that they don’t get hurt, which is for a lot of people, they just think that’s super, super unfair.
And a lot of these hedge funds have literally lost billions of dollars. Melvin Capital, I think the losses are around $2 billion so far. So it’s quite significant amounts of money that have been lost. And just recently, Steve Cohen and Ken Gryphon from Citadel and Point72 Asset Management have actually recently bailed out Melvin Capital because of being hammered so hard. And they’ve actually given them a cash injection of $2.75 billion.
And a lot of people are saying that they’re not doing that out of the goodness of their heart to help someone out, but more so because they think that company, they’re going to bounce back in a big way and they’re just trying to make even more money, which is hedge funds doing what hedge funds do.
So it’s been a pretty crazy last few days. The stock’s going mental. I’m sure it’s going to go very, very high up and then very, very high down at some point. But some of the big takeaways are, is the system really rigged against us? Is this all geared towards … It always has a bit of a casino vibe. You can go to the casino and you can win a little bit of money as long as the casino makes more than you. And you can try on these platforms and make money as long as the big players can make even more money or more money overall in the scheme of things. But as soon as the big boys start not making money, they want to have a big cry about it, and all the retail or inferior investors in their eyes, they can’t have them making more money than them or doing things that technically they’re kind of doing themselves and have been doing for a long time as market makers.
So it’s been a crazy few days. Let me know what you think in the comments. Do you think that the hedge funds and Wall Street are getting what they deserve? Or do you feel like the guys from wallstreetbets and the people of the internet have got it wrong? Obviously somebody is going to be left with the bag here. Who knows? I think a lot people are going to lose money. However, the question is, it’s a bit like a Mustang doing a burnout. Someone’s going to get hurt, but we don’t know who. But have a think about that. Let me know what your thoughts are, leave it down below in the comments. And if you liked the video, give it a like. If you didn’t, just give it a like anyway, and I’ll see you on the next video.