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In a war over GameStop, big funds yield to smaller investors

GameStop Business
Posted at 9:13 AM, Jan 27, 2021
and last updated 2021-01-27 16:21:35-05

Across most of America, GameStop is just a place to buy a video game. On Wall Street, though, it’s become a vortex battleground where swarms of smaller investors see themselves making an epic stand against the 1%.

And the funds serving the financial elite are starting to walk away in defeat, after bets they made for GameStop’s stock to fall left them facing billions of dollars in collective losses.

A pair of professional investment firms that placed big bets that money-losing video game retailer GameStop’s stock will crash have largely abandoned their positions.

The online-fueled stock surge of GameStop has caused the company's worth to shoot to nearly $10 billion. Last summer, it's stock was worth $4 a share, a share Wednesday is above $300, at one point hitting $372.

The increase in free or low-cost and easier access to trading with apps like Robinhood, plus a jokey Reddit forum have collided to cause the surge.

It started when it was realized that GameStop was shorted by more than 100%. That means, investors had bet more shares than existed in the company that it would lose value. Betting that a company would lose value, or short bets, is normal on Wall Street. And having a situation GameStop was in is not unheard of.

What is unique this time, is that people noticed and decided to see what would happen to those betting on a loss, when suddenly there was investment in the stock.

What started as a chat on Reddit has become a real-life stock surge, and some experts are worried about the repercussions of these amateur traders if they decide to force other lower-level stocks to suddenly surge.

One of the major investors to surrender, Citron Research, acknowledged Wednesday that it unwound the majority of its bet that GameStop stock would fall.

But not everyone is losing money. The investors who started the surge have seen their investment pay off, if they decide to sell their stock. And those who hold a lot of stock in GameStop have seen their value increase.

The stunning seizure of power by amateurs gives validation to smaller-pocketed investors. It also has Wall Street asking if the stock market's in a dangerous bubble about to pop.