Gamestop – Could it Happen to Your Investments?
Those who are afraid of the stock market, who are risk averse for investing or who despise the stock market, were served up a classic new scandal with the Gamestop soap opera.
The drama involved a group of individual investors communicating through social media who ganged up to buy stock in Gamestop, a video game, consumer electronics, and gaming merchandise retailer. They hoped to drive up the stock price and thereby cause losses for hedge funds who had “shorted” the stock. Shorting is a process in which a hedge fund borrows a stock to sell at the current price, expecting to buy it back at a lower price and earn a profit on the difference.
The mob succeeded in causing huge paper losses to some hedge funds, but due to maneuvering by the rookie brokerage Robinhood and others, the price of Gamestop plateaued, then fell significantly.
Could this happen to any investment you own? Maybe but unlikely. Economic historians laughed when they saw the Gamestop saga because it’s nothing but a financial bubble like hundreds that have appeared through history. Who is to blame? Maybe everyone…