Gamestonks

Many LSU students invested money in companies targeted by a group of online amateur investors in January.

AMC Theaters and other movie companies have seen their stocks decline throughout the pandemic.

Marketing sophomore Xavier Kent predicted AMC’s stocks would increase as vaccines became available and people started going to the movies again, so he purchased shares of AMC in November 2020 when the stock was around $3.

He said he planned for it to be a long-term investment — buying shares at a low price, leaving it there for years and selling it at a higher price — in a process called holding.

What Kent didn’t plan for was a group of online amateur investors on sites like Reddit and Discord plotting to artificially trigger a significant increase in the price of the stock.

Kent sold his shares in January when shares reached as high as $13.26, profiting much sooner than he expected to.

“I might as well take advantage of it now and sell it because it’s doing so well when no one expected it to,” he said.

Kent was unaware of what triggered the increase in the price, but said he wasn’t too concerned either.

“I had no idea. I woke up one day and it just happened,” he said. “I saw it trending on Twitter. That was crazy.”

Members of the subreddit WallStreetBets, mostly amateur investors, rallied to buy shares in multiple stocks that were being targeted by Wall Street hedge funds.

A hedge fund, a collection of investors pooling money together run by a hedge fund manager, would target a stock that it believed would fail, like AMC and Gamestop, betting against the company and profiting through a process known as shorting.

Short selling is when an investor believes that a stock will drop in price, leading the investor to borrow shares, sell the shares, and then purchase the stocks again and return them to the original owner. The investor stands to profit if the value of the stock decreases as expected.

GameStop’s stock has been declining since 2015 and the company’s business model has become less appealing as many people buy games online and download them without leaving their homes, a problem the pandemic has only made worse.

This led many short sellers to believe shorting GameStop’s stock was a safe bet.

People on r/WallStreetBets noticed this and began buying Gamestop stock en masse, forcing hedge funds to clear their positions and costing funds such as Marvin Capital billions of dollars in losses.

GameStop’s stock peaked at $347.51 in January, a massive increase from the stock’s price in 2020 that sat at around $5.

“Retail investors who bought the stock earlier at a cheap price and sold at a high price, they did make money,” Tengfei Zhang, finance PhD student at LSU, said. “Others who heard the news and rushed to the stock market — they were followers, not leaders.”

Digital advertising sophomore Drake Bartels said he lost some money after investing in AMC.

“I invested into AMC after GME [GameStop] prices rose since I was too late to that,” he said. “I thought AMC wouldn’t be up to the same amount of price as GME, but I knew it’d go up significantly. Overall, I lost about $300. I was up to about $500 and I could’ve sold then, but it was not about the money for me.”

Bartels, like many others on the subreddit, said they wanted to invest and hold their shares because it was more about making hedge funds lose money than making money themselves.

“This was 100% something bigger than making money,” Bartels said. “Lots of profiles on the r/WallStreetBets subreddit outright mentioned that they were in it to screw over the rich. This was definitely more of a community effort just to be funny and make some hedge funds lose everything they had.”

GameStop short-sellers lost $3.3 billion betting against the stock in 2021, according to the financial analytics firm S3 Partners.

Zhang explained that although these hedge funds lost money, others profited from the increase as well.

“Some other hedge funds looked at this opportunity: Gamestop’s price is $300, it’s time for them to short again,” he said. “The first group of hedge funds lost a ton of money. The second group of hedge funds [that] short sell Gamestop price at $300. They made tons of money. There’s winners and losers.”

Zhang advised against students investing in the targeted companies.

“Most of us are uninformed investors,” he said. “We don’t have private information. It’s like gambling for us in the short-term. We don’t have the ability to do that kind of technical analysis — It’s hard to predict.”

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