Why everyone is talking about GameStop stocks today, explained as simply as we can
If your mum tries to ask you what it’s about, just say stonks
Everyone’s talking about GameStop stocks and Reddit and it’s all a bit confusing. You’ve probably already asked someone you know who vaguely knows about stonks. Their answer started like: “oksobasicallythissubredditcalledwallstreetbetstriedtotankaloadofhedgefunds”, which is no help.
You’re lost. Why is everyone talking about this? What does this meme mean?
And this is what we’re going to try and explain. Hopefully you can read this without trying too hard, and then not really have to think about it again. It’ll do just enough to help you understand the excellent memes.
Right, as simply as possible, here’s what’s going on with Gamestop stocks
GameStop is basically American CEX and not doing well.
Because it wasn’t doing well, some hedge funds (investors, basically) placed a massive bet on its share price going down.
How this bet works: It’s called short selling, or “going short”, or “shorting”. You know, like The Big Short. You borrow some stock, sell it now at the high price, and then buy it back later at the low price and give it back. Buy low, sell high – a classic.
The problem with this bet: If the price goes up, you will have to buy it back at a high price, and the price could go up infinitely.
Enter Reddit: Some dude on Reddit notices that GameStop stocks are one of the most shorted stocks on the market (in other words, a lot of people are betting a lot of money that its price will go down), and spots an opportunity. If enough people on the Wallstreetbets subreddit buy the stock, they’ll push the price up.
If this happens, the big funds who have shorted the stock face big losses. They’ll try to limit their losses by buying back the stock. This will push the price up further. and further.
That’s basically where we’re at. GameStop’s stock price has risen from $39 a week ago, to just under $350 today. If you’d put £100 in on last Thursday, you’d now have about £850. Some Redditors have been in on this for a bit longer – if you put that £100 in a month earlier, you’d now have £2250 – and claim to have made millions. But you only get that money if you sell.
And Reddit doesn’t want to sell. “HOLD HOLD HOLD” has become the mantra. If people start selling, it’ll push the price down, and possibly cause people to panic and sell their stonks. Then the whole “Fuck over Wall Street” part disappears if the hedge funds can buy the stocks back at a low price. Instead, by holding, Wallstreetbets is hoping it can push the prices “to the moon”.
How do stock prices work? (Skip this if you don’t care)
There are three main elements which play a part in stock prices. Different people think different ones are valuable.
“Fundamentals”: Textbooks say that stock prices will reflect the actual state of a company – how profitable it is, its future prospects and so on. This school of thought says the stock market is very logical, and so because GME is struggling as a business, its price will go down.
Supply and demand: If lots of people are buying a stock, the price goes up. If lots of people are selling, the price will go down.
Sentiment: Essentially, the stock market is a giant meme and stock prices rise and fall based on panic and investor sentiment. It’s for this reason that some hedge funds have spent months chatting shit about GameStop – in an attempt to drive its price down so they can profit from their bets.
Who’s going to make money from GameStop stocks?
The first people to cash in. When people start selling en masse, the house of cards is going to come tumbling down. Those who hold until the bitter end will probably be left with nothing more than the sweet memories of sticking it to Wall Street. Of course, the trick is not to sell in a small dip immediately before the price rebounds. It’s a game of chicken, is what it is. Who knows the difference between the start of a small dip and the start of a massive decline?
But what does it mean for society?
Evidently, this has gone beyond a niche Reddit/Wall Street beef of interest only to people who don’t shower.
Joe Biden’s team is “monitoring” the situation. AOC is tweeting it. Every content site is writing an explainer.
There are plenty of takes about how this all represents The Democratisation of Financial Information. Cool.
The Redditors over on Wallstreetbets, the subreddit where this is all happening, have turned trading into a meme. They worship Elon Musk, hate the establishment, make crazy bets with their mom’s life savings, and meme the whole thing the whole way. Now, they’ve reached their zenith – revelling in treating the stock markets like a casino in the same way they believe the big traders do.
A more boring take, perhaps, is that this is such a big deal by now that anybody who’s anybody in the stonks world is probably involved, trying to make money one way or another. Yet again, the big bois have probably muscled in.
Probably the bigger question is: Should you sell all your Dad’s records and put it all into GME stock? And I can’t tell you that.