On Dec. 31, 2020, a little-known forum on Reddit called “r/wallstreetbets” started to quickly challenge notions about how the stock market functions. The niche subreddit transitioned from a place people went to simply discuss risky investments to a community that aimed to interfere with the inner workings of hedge funds, and in the process, the forum made a major statement about the power of individual investors. The online community’s plan was to buy stock in GameStop, a struggling video games retailer, to prevent hedge funds, such as Melvin Capital, from short selling the company’s stock to profit from its decline. Months after, the forum remains after intensive hearings, still teaching Wall Street titans a lesson that they don’t hold a monopoly on power.
Until “r/wallstreetbets” investors collectively bought stock earlier this year, the value of GameStop was falling due to declining demand. Yet, as a result of the action taken by the online forum, GameStop’s stock price skyrocketed temporarily; in less than a month, it soared to nearly $350 dollars per share, about 88 times higher than the stock’s price in March 2020. On Jan. 27, Melvin Capital finally withdrew from its investment in GameStop, losing $846 million in the process.
Economics teacher Topher Dunne believes that the subreddit’s action definitely wasn’t expected by its creators, given its humongous magnitude and tremendous influence on the market. “It could be easy for us [individual investors] to mess up the [hedge fund’s] plan [for a short sell] by making it [the stock price] go up a little bit,” Dunne said. “Then, this thing [r/wallstreetbets] just takes on life of its own.”
GameStop’s stock prices “makes me wonder whether the stock price really reflects the true value of a company,” junior Ike Cymerman, a head of the Investment Club, said. GameStop’s stock price was steadily rising, because there were people continuously pushing it with money as a part of the movement and simply refusing to sell.
Eventually, large schemes crack when they reach their limit of mobilization. The bubble created by not selling pops, leading to a return to the true value of a stock. “Anybody who made some money realizes [they] can pass out and make some money,” Dunne said, “[causing] more and more people to do that.”
From the short sell to the rebellion to the victory, there are people who gained tremendously from the “r/wallstreetbets” rebellion against the financial system, who usually do not have the opportunity to benefit from the stock market. In the end, the most important lesson learned from the phenomenon was not how the company’s stock was temporarily speculated to reach exorbitant prices, but that the true value of a company will always dominate in the long run. Even in such an unstable situation like this one, investing in stocks always requires investors to stay calm and carry on rationally.
Hercules Zhang ’24