GameStop is a retail chain that sells game-specific accessories, used games, and consoles. The company’s business model is built around selling physical copies of video games, rather than downloadable copies, which required a lot of upfront capital investment. This turned out to be a big mistake for GameStop, since the recession of 2021 resulted in the company’s stock value taking a nose dive.
In 2021, GameStop will stop selling game consoles and will all of their stores will be replaced by an entirely different business called “High Tech Gaming”. The reason GameStop stopped selling game consoles was because they were simply not selling enough consoles to make the business profitable. As a result, GameStop started to sell video game consoles at a higher price with fewer storage options. A few companies saw this as a potential business for them to enter, and since they had a lot of money, they took over the video game market.
(Disclosure: some of the links below may be affiliate links).
Many of you have asked me to investigate what happened to GameStop stock. Although it may be too late, it will still help you understand this strange event.
By 2021, GameStop’s declining shares had increased more than tenfold, with many hedge funds losing a lot of money, pushed by some individual investors.
This may be the first time a few small, well-organized investors have taken on large hedge funds and caused them great harm.
So read on to find out what happened.
First, let’s talk about what GameStop is.
GameStop is an American retailer of video games and gaming. They have thousands of branches all over the world. It is the largest seller of video games. He is very famous in the United States, but not so much in Switzerland. But they have shops here too.
It has been a very profitable business for a long time. However, they have been declining for almost a decade. More and more people are indeed buying video games online. For example, I haven’t bought a single physical game in the last five years. But on the other hand, I bought a lot of games online. And more and more players are doing the same.
As of 2021, GameStop is no longer profitable, and sales are dropping year after year. And they don’t seem to have made much effort to adapt their business model to the new paradigm of online gaming.
We can look at their actions through 2020 to see how they performed before this event:
GameStop (GME) promotion before 2021
They have performed well from their introduction in 2002 until the financial crisis of 2008-2009. They recovered fairly quickly after that, but began to decline again in the mid-2010s as the shift to buying games online became apparent. Since then, the stock has dropped significantly to below $5.
So we can conclude that GameStop shares were not a good investment until 2021, and the company is not in the best financial situation. So why do many people choose to invest heavily in this company? We’ll see about that!
I’m sure many of you had never heard of Wallstreetbets (WSB) before this GameStop saga. However, the subreddit Wallstreetbets became quite famous for this event. However, it was active long before this event. But today it has become much more popular than it used to be.
The WSB subreddit is a forum where stock players talk about their bets, often against the general direction of the market. The interesting thing about this forum is that people don’t hesitate to report their losses. In fact, there are far more failure stories than success stories on this forum. Some of them suffer huge losses and clearly laugh about it. Of course, some of these investors are ordinary investors like you and me. But some of them have a lot of money and are willing to gamble to get it.
It’s funny to read some of the things that happen on this forum. But don’t expect quality at most positions. It sounds very childish.
Remember: Just because some of these users made a lot of money at GameStop doesn’t mean you should follow everything you read in this subreddit. Also, don’t forget that these investors take a lot of risk.
Some WSB investors have watched the market and found that some stocks are heavily backed by large hedge funds. This means that hedge funds gambled on the underperformance of these stocks. To that end, hedge funds sold short. They were not selling shares they owned, but they were selling shares they had borrowed now at a higher price in the hope of buying them back later at a lower price. This technique is called short selling.
If you sell a short position, you have to buy it back later. During this period, you pay the interest on the loan. And if you get too involved, your broker may close your account, and you’ll either have to invest more money or buy the shares directly. Therefore, it is important to note that short sellers will have to buy back shares at some point or suffer significant losses. In a short sale, you could potentially lose a lot more money than you invested. In fact, the downside of short selling is unlimited.
GameStop shares were the main ones to drop significantly. Given the background I have given you about the company, it should not surprise you that some people have bet on a lower rate. Other stocks such as AMC, Blackberry and Nokia were also included in the strategy, but received less media attention. The big hedge funds have been actively shorting all these stocks. And these are all companies that are not in the best financial shape, but once were.
The plan apparently started with user DeepFuckingValue on the WSB forum. He had many shares and call options on this stock and regularly posted his updates on the forum. At first he lost a lot of money with these tools, but he persevered. And as a result, his portfolio has grown over 100 times. And he kept buying more as the price went up. It’s hard to say if everything he posted is true, but it looks like he made a lot of money from it, several million dollars profit.
So these investors decided to do two things. First, they wanted the stock price to rise, so the hedge funds would lose money. It was supposed to be the revenge of the small investors on the big hedge funds. If many people try to buy stocks and hold them, the price of those stocks will rise.
Secondly, they also wanted to create something called – short compression. This event occurs when many short sellers are forced to buy stocks to cover their losses, causing prices to rise. As prices (inflated by WSB investors) rise, more and more short sellers will seek to cover their shares, causing the price to rise even further.
Similarly, the price will rise faster if there are not enough investors willing to sell. WSB investors should have bought (and held) enough shares so that the hedge funds would not have enough shares to buy back. Therefore, they asked their members to keep their shares and not to sell the profits directly.
There have been several examples of great short sales in the past. In 2008, for example, the value of Volkswagen shares increased fivefold in a single day. But this short sale, unlike the GameStop event, was orchestrated by big players like hedge funds. That’s why the crisis surrounding the short-selling of GameStop shares has received much more media attention.
We can look at the stock after WSB investors start actively buying it in late January 2021.
GME stock in the first phase
We see that the stock has gone from less than $20 to over $300 in a few days! The highest daily price has even exceeded $400. This is an impressive result.
As soon as the first price spike occurred, other profit-seeking investors came into play and drove prices even higher. That’s when the media coverage of the event began. And this media attention has encouraged even more investors to join the company. Many of these investors had nothing to do with WSB, and some were hedge funds trying to make a profit by gambling on this period. And a lot of famous people, like. B. Elon Musk, spoke about it, to add to the excitement.
However, this did not last long. After a few days of euphoria, the price began to fall very quickly indeed. The main reason is that several brokers have suspended the purchase of new shares. In fact, on the 28th. January 2021, several brokers, including Robinhood, Webull and eToro, have banned the purchase of new shares. Since you could only sell shares, some investors decided to withdraw and new investors could not get in. Thanks to this fact, the price dropped very quickly.
Officially, these brokers have stated that they no longer allow their users to buy these shares because the clearing houses have collected the necessary collateral. Many cite conflicts of interest as these brokers receive a significant portion of their revenue from hedge fund affiliates. Several investigations are still ongoing in this case. It will be some time before we know more about this. But it’s bad publicity for brokers who have suspended trading in these stocks.
We have no data on hedge fund losses during the short squeeze. But we have information that one hedge fund, Melvin Capital, has lost 30% of its value since the beginning of the year. This is an impressive loss. And they had to be bailed out at the expense of Citadel and Point72 for $2.75 billion. I wouldn’t be surprised if other hedge funds lost a lot of money too.
This is exactly what WSB investors have been asking for, to show that investors still have the ability to make some of the big hedge funds lose money.
It is important to note that there is an ongoing investigation into market manipulation during this event by WSB investors. So I’m sure we’ll be hearing about this story for a while.
Interestingly, 20 days later the stock began to rise again. And from that point until mid-June, stocks were very volatile. It’s much higher now than it was before the first wave. However, it was no higher than in the first wave.
GameStop stock during second phase
We don’t know what caused the second wave. However, many investors on the Wallstreetbets forum are still betting on the stock. So we will have to wait and see how far he can go and who will win.
After discovering that some stocks were being heavily backed (bet against stocks) by hedge funds, some investors on the WSB subreddit decided to cause a price spike to force those hedge funds to lose money. In a matter of days, they managed to drive up the price of GameStop (and other stocks) very quickly. As a result, many hedge funds lost a lot of money.
But after many brokers stopped trading this stock, the price fell very quickly. Many investors who participated in this bet too late lost a lot of money. But many investors who started with the wallstreetbets forum have made a lot of money by selling at the right time or even continuing to hold shares.
GameStop stock is very volatile right now, with the price fluctuating wildly on a daily basis. And it remains much more expensive than before the price squeeze.
This is a very interesting story about the stock market and its volatility. A few very determined (and wealthy) investors can make a significant change in the market. And hedge funds, which should know what they are doing, can lose a lot of money very quickly.
This story perfectly illustrates the risks associated with the fear of missing out on something (FOMO). Many investors started buying GME at the top assuming it would continue to rise (as many have said). But they sell at the end of the first phase because they are afraid of the risks. Therefore, you need to be very careful with your emotions when you invest. Emotions are not good investors!
To me, this demonstrates the long-term benefit of passive investing. Keep it simple! Just because some people make a lot of money doesn’t mean they’re smart. It’s more likely that they got lucky and took an incredibly risky gamble. And let’s not forget the people who lost money!
I have not invested directly in GameStop and do not plan to do so in the future.
I tried to keep it short so you know what was interesting and what was going on. I didn’t go into all the details because I don’t think most people will be interested in them. If you would like more information, please let me know in the comments below. And if you want to know the whole story, you can read RIP’s post on this saga.
What do you think of this saga? Did you invest in GameStop?
Get our best strategies and tips delivered straight to your inbox.
Get free advice on your finances to help you become financially independent!
Sir, I want to thank you for your support. Poor Swiss is the author of thepoorswiss.com. In 2017, he realized he was caught up in lifestyle inflation. He decided to reduce his expenses and increase his income. This blog tells his story and his conclusions. In 2019, he set aside more than 50% of his income. His goal is to become financially independent. Here you can send a message to Mr. Send Bad Swiss.
Frequently Asked Questions
Why did GameStop go down?
GameStop is currently experiencing technical difficulties. We apologize for any inconvenience this may have caused.
What happened to the GameStop stock in January 2021?
GameStop stock was trading at $1.00 per share in January 2021.
What’s happening with GameStop?
GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products. GameStop is a leading retailer of video games, game consoles, and related products.
Feedback,what happened to gamestop todaywhat is going on with gamestop todaywhat happened with gamestop yesterdaywhat will happen to gamestopwhat happened with gamestop simplegamestop news,People also search for,Privacy settings,How Search works,what happened to gamestop today,what is going on with gamestop today,what happened with gamestop yesterday,what will happen to gamestop,what will happen to gamestop as a company,what happened with gamestop and robinhood,what happened with gamestop simple,what is happening with gamestop for dummies