What is Going On with GameStop?

The current situation in the stock market explained in simple terms 

*I am not a financial advisor*

You may have heard things about companies like GameStop ($GME) or AMC Entertainment Holdings Inc (AMC) doing some pretty wild things in the stock market lately. Wild doesn’t even begin to cover it. GameStop (a video game retailer) was trading on the stock market around $44 at this time last week. Within the past week, the stock price has gone as high as $482. This is an astronomical jump. It’s the type of jump that can put GameStop into the Fortune 500. It all might be pretty confusing to you so I figured I’d break it down. 

I’m here to explain the whole situation in very simple terms. 

A Tale As Old As Time

First thing you need to know. This is a case of “The Internet vs Wall Street.” Some large hedge funds did some things that normal people didn’t like. Then all these normal people got together on the internet (Reddit, specifically) to fight against the hedge funds. 

What Did the Hedge Funds Do? 

Hedge Funds bet against GameStop. It’s that simple. They bet that the GameStop stock price would go down. 

What Did the Internet Do?

The internet decided to make the GameStop stock go up, thus costing hedge funds billions of dollars. A stock goes up when enough people continue to purchase the stock as the price moves upward. In this case, the chatter on the internet got enough people to continue buying GameStop stock even as the price continued to soar. 

The online chatter had targeted several other businesses to invest in that would similarly cost hedge funds lots more money and make money in the meantime, but then something unexpected happened.

What Happened Next?

Hedge Funds started to lose billions of dollars. Yes, billions. The internet was winning. It seemed like a David vs. Goliath story. However, we all know money and power can make a pretty huge difference in the battle between good and evil.

Are you paying attention? This is where it gets even more wild.

The trading platforms normal people use to buy and sell stocks STOPPED ALLOWING PEOPLE TO BUY SHARES OF GAMESTOP, AMC, AND OTHERS. 

You heard that correctly. Turns out, these trading platforms also saw that they’d be losing money due to their own bets against these businesses or their relationships with the hedge funds, and they decided to stop the internet in its tracks. 

Here is part of the statement from the trading app, Robinhood: 

Current State of Affairs:

The internet is blazing. People are incredibly upset. “Fair trade” is being called into question in the United States. AOC and Donald Trump Jr. are both mad at Robinhood and other trading apps – which may be the first time they’ve ever agreed on anything. 

Barstool Sports President, Dave Portnoy thinks everyone at Robinhood involved in shutting down trading should go to jail. 

Oh, and the stock prices of GameStop, AMC, and others have been dropping – which is not surprising. If no one can buy shares, the price can’t go up. 

What Happens Now?

This won’t be over soon. The battle that has been sparked is between the financial elite and the everyday people of America. People on Reddit and Twitter will continue to try to find ways to subvert the efforts of hedge funds, and hedge funds will use their money and power to try to stop them. 

What Should You Invest In Right Now?

So what should you be investing in at the moment? Low cost index funds. Stick to your normal plan. Don’t try to hit home runs during this time of extreme volatility. If you have extra money just lying around and you don’t care if you lose it, then what the heck, join the fight. 

But keep in mind, stocks that are pushed higher and higher for no reason other than people on the internet all agree to do it, will eventually come back down to align with their profits and losses. You don’t want to be the one stuck with the losses when this occurs.