Opinion | Pumps and Dumps and Chumps

In a more reasonable world, hardly anyone would care about the ups and downs of a smallish retailer’s stock price. Even near the top of its Reddit-fueled roller coaster, GameStop accounted for only about 0.06 percent of the total value of U.S. stocks. Furthermore, the stock market itself is mainly a sideshow to the real economy.

But we don’t live in a reasonable world, we live in a world where the GameStop story briefly commanded global attention. And the craziness did offer some important lessons — not so much about economics and markets as about psychology and politics.

For it turns out that despite four years of Donald Trump, our society remains remarkably gullible. And it is not just members of the public who believe what they see on social media; far too many influential people still keep falling for fake populism.

The story so far: GameStop is a chain of stores selling video games and other electronic goods. With the rise of online gaming the company’s underlying business has been in gradual decline. Recently some hedge funds, which believed that this decline wasn’t fully reflected in its stock price, began selling the stock short — that is, borrowing stocks and selling them, expecting to buy the stocks back at lower prices.

Enter Reddit, an online discussion site. WallStreetBets, a “subreddit” (discussion board) that caters to small, risk-taking investors, has become a force in the market: Stocks promoted on the board, so-called meme stocks, sometimes soar. And that’s what happened to GameStop.

GameStop vs. Wall Street

Let Us Help You Understand

    • Shares in GameStop, the video retailer, have crashed from their January highs, which were driven by memes on social media.
    • Amateur traders egging on one another on Reddit bet heavily on shares of the company in January, sending the price up more than 1,700 percent at one point.
    • The wave was in part aimed at hurting large hedge funds that had been short selling — betting against — GameStop stock. Some of those funds experienced huge losses as a result.
    • But many of the individual investors who pumped up the stock could lose huge amounts of money, too. Some believe the price will go back up and are refusing to sell, even as the share price has collapsed.
    • Now, regulators are looking into how the rally started and whether new rules should be created because of it.

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