On the stock market GameStop provides for furore: Around almost insane 115 per cent rose the security on Monday, fell then also again back. Behind it are private investors who conspire on Reddit to ridicule institutional investors.
Traditional stock markets are experiencing a spectacle these days, highlighting just how vulnerable they are. The stock of GameStop, a U.S. company that also has its stores for computer games in Germany, serves as an example. GameStop’s difficulties were accelerated by the Corona crisis, and its share price plummeted. But management changes were supposed to bring about a turnaround. This mixed situation tempted institutional investors to massively short GameStop, i.e. to bet on falling prices. Now, however, the Reddit forum r/wallstreetbets comes into play: There, private investors agreed to “wet” the so-called stock market professionals, to put it bluntly. With coordinated purchases of GameStop shares, they drove the price up, which in turn forced the short sellers to liquidate positions at a loss.
On Friday alone, institutional investors are said to have thus taken a loss of $1.3 billion on their positions in GameStop, and by January 2021, this play on them is said to have already provoked a loss of at least $3.3 billion. “Pump and dump” is what stockbrokers call such behavior as what originated here for GameStop on Reddit. If you look at GameStop’s price curve for January, you understand that it probably started with the action on January 11, when GameStop slipped into positive territory as a result of the change in leadership. Institutional investors remain, at least in part, with price targets of around $20 and went short accordingly.
But the momentum developed in the other direction. GameStop stood at a fabulous 88 US dollars at the end of trading yesterday, caused by the purchases of Reddit users. Completely unnerved, Andrew Left of Citron Research, for example, speaks of an “angry mob” that is spoiling his business and must be held legally responsible. To what extent his complaint has a chance of success is completely open. Clear names, at least, are not common on Reddit.
Conclusion: GameStop – some laugh, others curse
One thing is clear: The GameStop share has nothing in common with serious pricing for the moment. Here a new generation of private investors speculates purposefully against the large houses, which were obviously not prepared for such an attack and also still no defense strategy found. And he knows: Maybe the Reddit users will take on new targets with other stocks, spurred on by their coup around GameStop. After all, their surprise at GameStop allowed them to book pluses when short sellers had to buy from them at artificially inflated prices.
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