Keith Gill is a 34 year old reddit user, known as “DeepF-ingValue” who has spearheaded a financial movement from Reddit. This week, Gamestop’s stock GME has spiked to a record $347.51, a 135% gain. Around the start of the year, GME was ~$18. r/wallstreetbets is on the platform Reddit, and it is composed of both teenagers and adults who have taken an interest into the stock market.
What caused the huge jump?
In order to fully understand what happened with the Gamestop stock, you have to understand how stocks work in general, and what shorting is. Stocks are investments in company that also show the state of the company’s success/failure. When purchasing a stock, or share of a company, you become a shareholder, and in successful cases, you earn a return on the investment. Short-selling a stock, or “shorting” the stock is a strategy used when a company is predicted to be unsuccessful. When an investor short sells a stock, they borrow the stock, sell it for a certain price and then buy it back at a lower price to return it to the lender. This allows the investor to make a profit on the difference of the stock when it declines.
Hedge funds also played a huge role in this situation. Hedge funds are pooled investment funds, that essentially gather the money of several investors and use various strategies to make a profit. Due to the extensive amount of pooled money, they often have lots of more complex options than the average trader, as they can have a more diverse portfolio and less-risky trades.
Melvin Capital is a huge hedge fund that reportedly has $8 billion in assets, which is a huge amount of money for investing. With the news that GameStop would decline in sales and performance this year, Melvin Capital decided to short sell GME stocks. However, when Reddit, and specifically Keith Gill caught wind of this, they rose to action. From many people’s perspectives, hedge funds are a way for the rich to get richer, and the poor to stay poor. They can manipulate the market in many ways, as they are financial elites and have connections, power, and wealth. Keith Gill decided he would stand up to them and buy GME stock, which would raise the price, giving him profit and making Melvin Capital lose money. He then posted this on r/wallstreetbets, which incurred many people’s inquisition. Over the span of 24 hours, GME stock rose rapidly, with people investing thousands of dollars into the stock. This caused GME to spike, and Melvin Capital eventually closed out with a 53% loss, a devastating end.