Recently, certain stocks in the stock market, notably Gamestop and AMC, rose to improbable levels of value. Gamestop’s price per share rose from about $16 in early January to almost $400 per share. This was fueled by a subreddit called WallStreetBets, where gamers and Redditors decide to buy up the stock of companies that had been shorted by multi-billion dollar hedge funds. They called upon people all over the world to invest in the stocks, causing hedge funds like Point72 to lose billions of dollars collectively.
The saga was further fueled when active politicians and popular people expressed their opinions online while Robinhood decided to restrict the trading of Gamestop, AMC, and Koss. Elon Musk tweeted “Gamestonk,” and Alexandria Ocasio Cortez, defending the volatile movements of the market, tweeted: “We’re done letting hedge fund billionaires treat the stock market as their playground, then taking their ball home as soon as they lose.”
This unpredicted Reddit rally showed how Main Street, or the common public, still had a strong voice in the stock market. Many economists proclaimed that Main Street’s influence in the stock market was slowly declining and on the verge of extinction before this unprecedented rally. They feared that the stock market would be monopolized by multi-billionaires and their hedge funds. This market rally proved that ideology to be completely wrong. People did not choose to invest in these stocks randomly; these were stocks that multi-billion dollar hedge funds shorted. If one cannot pledge money for a house or car they do not own, why can a hedge fund do that with shares of companies?
While it certainly is risky, hedge funds usually do a deep analysis of the company and its performances before shorting a stock. What these hedge funds did not expect in this situation was that there would be an artificial spike in the share price of the companies they had shorted. These hedge funds endured a heavy enough damage to their fundsy that they purchased additional shares in these stocks so that the shares’ values will continue to increase. However, the high prices of these stocks are not expected to remain for long. People will start selling them for a profit or to avoid incurring further losses, and the values of the shares will eventually decline to their pre-Reddit boom prices.
From this event, a big lesson is learned: Main Street still wields some power in the stock market. If the people band together, anything is possible.