Chronicle Journal: Finance

What Can We Learn from the Gamestop Incident?


Once upon a time, a mean hedge fund troll lived under a bridge, short-selling shares from innocent retail companies came across its path. Then, one day an army of handsome retail investors drove the shares up and made the troll lose a lot of money. The investors got paid, and the retailers we all know and love are saved.

But that’s not quite the end. Investing in any stock comes with risks, and revolutions driven by social media such as the GameStop incident can increase those risks tenfold unexpectedly.

Sales drive profits, and many of the companies that retail investors bought shares in during this so-called revolution just don’t make enough sales to keep their company value so high. The stocks are going to crash again, and someone has to be holding them when they do.

The Markets Can Be Manipulated from Anywhere:

The one thing we should all take away from this is that anyone can manipulate the markets. Once you have enough power, you can influence the entire stock market. The incident also uncovered market manipulation from inside Wall Street from hedge funds and prominent investors. We’ve also learned how easily a group of motivated individuals can take over a market with communication through social media.

Don’t Follow the Herd:

Many people have lost massive amounts of money in the time during and after the GameStop saga. Many more will also continue to incur these types of losses in situations like these.

Pros who invested in large stocks like Apple lost millions at the peak of the GameStop stock value, and many retail investors lost tens of thousands when Robinhood blocked retail customers.

As mentioned before, many who still have their thumbs in the GameStop pie are due to lose more as the company’s profits are almost sure to keep decreasing as they’ve been for years.

Investing Isn’t Just for the Thrill:

If you’re looking for a type of thrill you’d get from an online casino, there are better places to look than the stock market. Investing hard-earned money is something you should think long and hard about before you do it.

Riding a hot stock can give a thrill, but you can lose a lot. Stick to the investments that you can see as a nest egg for later use.

Don’t Buy Stocks Because You’re a Fan:

Many retail investors who bought and still hold shares in companies like GameStop, AMC, and BlackBerry bought them because of the memes on Reddit and because they think their shares will help the companies and keep them open for longer.

Unfortunately, that’s not quite how it works. Those companies are ultimately not profitable, and that’s why their stocks were so low in the first place.

In the end, the whole incident opened a question about just how public the stock market is and how much regulation we put on individuals versus companies and hedge funds. However, investing in retail companies that aren’t making a profit is setting yourself up for failure.

Conclusion

It perfectly illustrates how much our worldwide economy has turned into an “ownership” society that relies on the volatile markets versus actual work and profit.

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