How Reddit users fueled a GameStop stock surge

BOSTON — Some people might call it undermining the system, others would call it outsmarting the system, but a lot of people are making significant money from a company that is struggling to stay open.

One month ago, shares of the video game retailer GameStop sold for $21. Last week, the price was $39. The market closed Wednesday at $347.

The stock market is supposed to be a place where anyone can buy a share of a company’s projected future earnings. But with everyone spending more time at home recently, financial experts say it’s become more like a casino where a company’s fundamentals don’t matter.

“GameStop may or may not be a good company, but it’s not worth 20 times what it was worth two weeks ago,” said Dave Clayman, CEO of Twelve Points Wealth Management. “I will be surprised if we don’t see a book written about GameStop one day.”

The large uptick is due to the concept of a “short squeeze” led by Wall Street institutions competing against an activist community of online investors, who SpaceX CEO Elon Musk cheered on with a one-word tweet: “Gamestonk!!”

“Yesterday I saw there was a Reddit forum with these day traders hyping up the stock,” said Hyde Park resident Millie Perez.

How Reddit users fueled a GameStop stock surge

The tug of war goes like this. Large hedge funds place bets on companies with declining sales to fail in a concept known as selling short. Then online investors come together to take those companies’ stocks higher forcing the hedge funds to buy the same stocks at higher prices. That combination sent several stocks to record numbers.

The Securities and Exchange Commission said Wednesday that it’s noticed all the volatility in the market, though it did not name GameStop specifically. The agency said it’s “working with our fellow regulators to assess the situation and review the activities” of investors in the market.

“I don’t know that you can make it illegal what’s been done,” said Clayman. I think that an investigation will likely be enough to scare some people to stay away.”

That investigation is around the corner. Massachusetts Sen. Elizabeth Warren told Boston 25 News in a statement, “For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price. It’s long past time for the SEC and other financial regulators to wake up and do their jobs.”

Despite the anonymity of the internet, those regulators will have to see if there was anyone who facilitated the moves.

“If it truly is Joe and Jim and Steve just getting on a message board and saying ‘Hey I own this stock go buy it,’ there’s not really a lot you can do about that. There’s nothing wrong,” said Clayman. “But if there is something nefarious that is discovered whereby someone who stood to benefit significantly took advantage of this opportunity, then that’s something that can be regulated.”

The stock market doesn’t reflect our actual economy, but Clayman says this could impact the real economy.

“There was more than a short sale loss of $150 billion this week alone which makes it seem this is more than a few guys in their basement,” said Clayman. “If this continues for a few weeks, there could be a market crash.”

Clayman says while there are people making money while trading and investing in the stock market, there are just as easily people losing their life savings, so you have to know what you’re doing — or work with someone who does.

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