How Did GameStop Stock Rise and Plunge So Suddenly in Early February?

GameStop is a well-known fixture of the US Shopping Mall, selling video games, consoles and other gaming paraphernalia. And because the Coronavirus has forcibly closed the stores plus gamers tend to buy online and download games direct to their computers, it has been likened to the Blockbuster Video rental stores and HMV.

The feeling on the street was that GameStop’s days were numbered because the store is increasingly looking like an anachronism. After all why bother leaving your room to go to the store when you can buy your latest game or latest piece of tech online, along with your pizza?

At the beginning of February, something strange started happening with GameStop stock. Everyone started buying GameStop stock in a move that has been described as the storming of the Capitol in January. The rush to buy GameStop stocks was fuelled by gamers’ favourite forum Reddit and quickly spread across the internet.

The prime mover in the GameStop buying craze was started by Reddit user and industry watcher Keith Gill. His rationale for buying stock in Game Stop was that the company had underlying strengths such as a loyal customer base and reward system plus a new set of board members with a background in ecommerce. He felt that the falling price of GameStop shares made the company a good choice for investment so passed this on to Reddit users.

This was not the reason why GameStop stock went through the roof. Most people buying GameStop did not consider the reasons for buying, because it became a movement, similar to a meme and the craze affected people who had never previously considered buying stocks and shares but wanted to get in on the action.

Many gamers found it amusing to invest in GameStop and like the storming of the Capitol, it seemed to represent an idea of “sticking it to the man” in a populist idea of gaining control over the stock market.

The GameStop buying frenzy has had a negative effect upon the companies who bet on GameStop’s failure. Instead of reaping the profits of shorting GameStop, investment companies such as Melvin Capital lost billions of dollars overnight. Do we care? Not really. How does this really affect any of us “ordinary “people and benefit the economy?

The stock market is always volatile and unpredictable. And although many people invest in a company based on knowledge of market trends and political upheavals, the way the market moves is often driven by feelings and desires that cannot be rationalised.

The rise of GameStop is probably over now, and the wave of investment has slowed. Will any of these amateur investors make money from their GameStop shares? It is impossible to say.

Robinhood an investment brokerage has been accused of encouraging amateur investors to invest via their app which works pretty much like any gambling app on the market with lively graphics and gamification. Is this a bad thing for the economy? Stocks and shares is a gamble and has been likened to a game so why not make it accessible and fun for everyone?

One interesting point about the GameStop craze is that it completely derailed the established stock market for a few days.  If it has made the establishment nervous, all those Game Stop investors will probably think it has all been worth it.