After a successful short-squeeze, the GameStop stock has been turning average joes into millionaires and led others to compare it to gambling.
GameStop stocks exploded earlier this week, but it’s not because the business is doing well. The shares have been artificially inflated as part of a short-squeeze scheme spawned from Reddit, which has led many to question how easily the market can be conquered if done right.
The /r/WallStreetBets subreddit pounced at the opportunity to turn a $20 stock into a $300+ stock, with many dubbing it as a once in a lifetime opportunity. Following the intense and sudden boom in GameStop, many started looking for an alternative that would hopefully give them similar results. Many turned to AMC, which went from low single digit shares to almost $15 a share in 24 hours. The plan isn’t really to keep these stocks, though. They’re a short term investment used to squeeze out loads of profit once they sell. It has gotten so much traction that it has now gotten attention from the Biden administration. It has been noted that this isn’t really trading or even investing so much as it is straight up gambling.
DailyFX analyst Peter Hanks likened the scheme to sports gambling and commented on this as part of a larger statement. “The behavior of GME shares has passed the point of traditional ‘investment analysis’ into full blown mania so investing in GameStop at this stage might be more akin to sports gambling, rather than making an educated wager on the company’s financials or revenue expectations,” said Hanks.
The likes of Elon Musk have helped pump the GameStop stock up, causing even more people to throw money into the chaos. Hanks noted that history is being made right now, whether Wall Street likes it or not. “GameStop’s ascent is nothing short of remarkable and the event will undoubtedly make it into finance textbooks in the future. That being said, the longevity of this move is much more difficult to pin down as the stock has become completely unhinged from any fundamental valuation methods and enters into a short squeeze“
The film Uncut Gems has come up a lot on social media over the last few days with comparisons being drawn between new investors and Adam Sandler’s Howie. Whether or not this will end as badly for investors as it did for the fictional sports gambler remains to be seen. The GameStop stock is expected to continue to rise for a bit longer but once it reaches its peak, it will drop dramatically and return to its normal stock value. The GameStop stock also went into a small free fall after the market closed and Discord banned the official server for /r/WallStreetBets. The stocks eventually went back up but it caused a lot of panic for many.
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