HOT TAKE!!! Why I oppose the Great Gamestop Rebellion of 2021

Unless you’ve been living under a rock, you know that a group of reddit investors gave a Wallstreet hedge fund a bit of its own medicine.

 Here’s what happened. A group called Wallstreetbets learned that the hedge fund Melvin Capital was short selling the video game company Gamestop. In response they bought huge sums of Gamestop stock and forced Melvin Capital to lose billions. In return some members of Wallstreetbets made millions if they got in on the action early. This shook the stock market and caused several larger trading companies to temporarily stop or freeze trading on Gamestop. 

 Short selling is the practice of taking a side bet on the fortunes of a stock. Essentially, an investor can look at a stock and make a wager on whether that stock will rise in value or go down. If the investor bets that the stock will go down that’s called short selling it or “shorting” it. If you need a visual, watch this three-minute video from Wall Street Survivor. They break it down.

 Melvin Capital made this type of bet on Gamestop, and the reddit group thwarted them by buying a lot of Gamestop stock, causing Gamestop’s stock to go up from $19.95 on January 12 to $347.51 on January 27th. 

 Many people are applauding this action as a case of the common man beating up a corporate giant. To them it’s even better that they are using a rich person’s game against them.

 Short selling as a business practice is abhorrent, since it’s basically people making money off a company going out of business. However, the actions of the reddit revolution are dangerous and short sighted. 

 What they are doing causes more harm than good. Stocks are based on real world circumstances and the market situation around Gamestop is not positive. Its business model is based on buying and selling physical copies of video games. Ever since video games went digital, Gamestop has been obsolete. At best the redditors have allowed Gamestop to stay in business a few months longer than it would have. The cost will come when a lot of people are holding worthless stock. 

 In addition, the strategy to damage hedge funds is perilous because all sorts of people are invested in hedge funds and not just rich people. Furthermore, the idea that this is a transfer of wealth is somewhat misguided because it looks like there are people who cashed out Gamestop when it was going up and made a lot of money while many of the investors will get stuck with worthless stock. It doesn’t appear that any of that money will be redistributed back to the people fueling the rally and holding the stock. This makes the people who profited off this not much better than the hedgefunds they claim to detest.  

 Finally, many of the investors are tampering with the market without fully understanding it. Continued unpredictability in the short sell market could spook investors in other areas of the market or cause hedge fund managers to sell other stocks to cover their losses on Gamestop. This could have unforeseen consequences for the stock market and even the general public. In the past, market collapses have been sparked by unexpected bubbles such as this one. 

 In my opinion, a more effective strategy would be to use the political process to outlaw short selling or tightly regulate it.