Investing 101: Short Sales and Game Stop

Bull. Bear. Short-selling. Hedge fund. Why is everyone obsessed with Game Stop?

There has been a lot talk about the stock market in the news lately and sometimes it’s hard to understand what everyone is talking about. I wanted to help clear the air and talk about some of the recent big stories in the news. I am not a professional trader or stock analyst, I am an MBA student who is extremely interested in researching and learning more about investing and the stock market and I want to share all the news and knowledge that I can with you.

The big story with Game Stop first started evolving even before late January, 2021 when the stock prices went crazy. It started when hedge funds, investment companies, decided they want to short sell the Game Stop stocks. A short sale is an investment or trading strategy that speculates on the decline in a stock price. This particular short sale happened when institutional investors (hedge funds) thought that Game Stop’s stock was over-valued and that the price was going to drop in the future. They then borrowed Game Stop stocks from brokers and sold them back into the market at what they believed was an over-valued price, intending to buy it back for cheap in the future.

This is when the Reddit group called wallstreetbets noticed that there were more shorted stocks for Game Stop than actual shares of it in existence. This wallstreetbets community spread the word on the shorted Game Stop stocks and encouraged normal retail investors to buy up all of the available Game Stop stocks, which forces the price higher, knowing that the hedge funds MUST pay back the brokers that initially lent them the stocks. This drove up the stock price from around $20 per share up to $300-$400 per share.

During the height of the stock price some trading apps like Robinhood disabled the ability for users to buy Game Stop stocks but they did allow users to sell shares, which helped drive down the stock price. There is a lot of debate about the reasoning and ethics behind halting trading for Game Stop, so much so that there will be a Congressional hearing with the CEO of Robinhood, CEOs of two of the hedge funds involved, the co-founder of Reddit, and the trader who initially spread the story. I will update you all after the hearing.

In the end, the price of Game Stop stock dropped significantly compared to its height of $400, and today is valued around $40, but it keeps dropping everyday. The story of Game Stop has helped expose some of the inefficiencies in the stock market and shed light on some questionable practices.

Author: vancealm

Working as a manager within two of the largest retail companies for the past 7 years has given me insight into consumer trends and essentially what people are buying on a normal basis. Why is that useful? Because it gives me a better understanding of the established and growing brands and companies that could potentially work to make YOU money. My name is Vance Alm and I am currently working on earning my MBA from the University of Nevada, Reno. I want to talk, teach, and find out more about investing in the stock market. Recently, there has been a lot of news around the stock market, hedge funds, and normal retail investors which has reignited the nation’s curiosity about investing their money. A lot of people want to be involved with the excitement of potentially making money by investing in the stock market, but they don’t know how or even where to begin. I want to explore the world of investment banking with you and talk about everything involved, from researching different companies to invest in, to the different online platforms or financial service companies you can use and everything in between. I am not a wealthy hedge fund manager and I am not an expert in the field, but I am passionate about the idea of having your money work for you. I am always learning more on the topic and I want to open the conversation on how to start investing and what companies to potentially invest in.

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