I’ve had a small brokerage account for a few years now, something I’d throw a few bucks into every now and again and forget about. But when I started hearing rumblings about GameStop, the traditionally brick-and-mortar video game retailer, my ears started to perk up. This led to a string of late nights and stress-filled days doing research, looking into FINRA reports, obsessively following the stock ticker, and looking up what each and every abbreviation and statistic really meant.
For the uninitiated, GameStop recently experienced a fervor of trading, brought on by the prospect of a “short squeeze”, along with some promising outlooks brought on by new blood on the board. Simply put, a short squeeze occurs when traders must buy shares on the open market but there aren’t enough shares available to purchase. When this happens the price of each share skyrockets and people who own the stock can sell for a massive profit. See for example Volkswagen in 2008, where it briefly became the most valuable company in the world.
Much of the enthusiasm towards the stock came from an online forum known as WallStreetBets, where users frequently post their gains, losses, research, and humorous content for each other to comment on or critique—frequently with language reminiscent of The Wolf of Wall Street. It’s where I first came upon this news well before most media picked up on the story.
It should go without saying, but never make an investment without doing your own due diligence first. I did my own before pouring in a small amount of cash into the stock in late January, when the price was just under fifty dollars.
It’s difficult to describe the minute-to-minute emotions during the weeks I held the stock—sort of a prolonged, bored anxiety. I’d look through every repetitive article which catalogued the insanity that was occurring, and the sheer amount of panic being felt by a few rich hedge funds. Sources estimated their losses in the billions and the stock soared. A fifteen-percent gain was a slow day. More and more people had piled on to the stock and it seemed that the ride would never end. My investment doubled, then quadrupled, then increased tenfold. At this point I was planning my exit strategy. I had already sold off a few shares prior, enough to recoup my initial investment costs but retaining the majority of the shares I had bought.
Then the market conditions changed. A number of retail brokers (what most common investors use, me included) restricted the shares a person was allowed to buy, effectively halting the continued spike. It’s entirely possible that other factors were at play as well, though hedge funds are able to conceal their positions making it difficult to tell if they were doing anything on their end as well to push the stock price back down.
Just as quickly as it had risen to over five hundred in after-hours, it tumbled back down. The rabid fans of the stock on WallStreetBets had insisted that it was all part of the plan, that the hedge funds were attempting to get people to panic sell, further driving the price down. As it stands now the stock is hovering right around fifty dollars, exactly what I picked it up for.
Others bought in further to the ground floor than I have (the stock’s year-long low was around three dollars) but my shares are riding on free money now. I’ve recouped my initial investment cost already and the rest is “house money” I’m letting ride in the slim hopes that something else could happen.
There are talks of a documentary being made about this whole ordeal. I’m hoping it delves deeper into what the hedge funds were doing as the stock was a hopeful to reach one thousand per share. I’d like to see their plight; see how they were panicking and furiously formulating plans to get out of the horrible positions they found themselves in. I’d like to see exactly how close they came to disaster and how close WallStreetBets came to winning.
I’m not upset knowing that I could have sold and realized a large return on my investment. Instead, this was a learning opportunity. Greed got the best of me, much like it did the hedge funds who over-shorted the stock. A scenario like this won’t come around for some time but I aim to keep a more level head when making trades in the future.
If you’re planning on doing any trading like this in the future do your homework first. Don’t let your emotions get in the way of a healthy profit, and don’t put in more money than you’re willing to lose. While I got off relatively scot-free, other investors were not so lucky, and I’d hate to see anyone stuck with the bag at the end of the day.