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How Reddit Users Took on Wall Street Over GameStop stocks

How Reddit Users Took on Wall Street Over GameStop stocks
Ken Wolter/Dreamstime

By Thursday, 28 January 2021 10:02 AM Current | Bio | Archive

A group of users of Reddit, the social media platform, turned the tables on Wall Street on Wednesday, pushing up the prices of previously unloved stocks in firms such as aging video games high street chain GameStop.

The Reddit community r/wallstreetbets, which has 2.8 million members, was urging members to keep pushing the stocks higher with the aim of putting the squeeze on investment funds Melvin Capital and Citron Research, which had placed bets for the money-losing stock to continue to fall.

It seemed to have worked. Despite no material change in the firm’s unstable position, GameStop shares climbed from just $18 two weeks ago to a high of $380 on Wednesday.

Citron Research acknowledged Wednesday in a YouTube video that it unwound the majority of its bets against GameStop's share price, taking “a loss, 100%” to do so. Melvin Capital is also pulling its resources from short positions on GameStop shares.

But come Thursday morning, the saga had taken a surprising twist, with shares down 20% in after hours trade after the Reddit investor forum closed to the public temporarily.

Reddit moderators closed the wallstreetbets forum to make adjustments after it was blocked on chat app Discord due to obscene content.

“We blocked all bad words with a bot, which should be enough, but apparently if someone can say a bad word with weird unicode icelandic characters and someone can screenshot it you don't get to hang out with your friends anymore,” read a message from the group’s moderators after wallstreetbets reopened.

Discord said its decision to close the forum had nothing to do with its effect on share prices.

“The trading frenzy has spread globally and has led to a White House alert,” reported the BBC.

I would urge investors to exercise the utmost caution before joining social media-led stock frenzies of this nature. The valuations can be expected to be extremely wild - in both directions – and there’s a legitimate risk that investors could get burned.

This is being pitched as a battle-play of Wall Street or The Square Mile versus The Little Guy. However, this is not typically the way reasoned, savvy investors should strategize to create and build their portfolios in order to reach their financial goals.


Earlier this week, I noted that in today’s landscape, “it is not the macro-bubble of which investors should be wary.”

I wrote on Newsmax: “Any potential bursting of bubbles is likely to be within specific stocks, so unlikely to rock the global financial markets as has happened previously – but individual investors could still be caught off-guard.

“Micro-bubble spotting, and diversification across asset class, sector, region and even currency, should become a priority for investors right now.”

As ever, investors should work alongside a good fund manager to seek out those stocks most likely to generate and top-up their wealth over the long-term.

I would avoid being drawn into the hysteria driven by social media.

Nigel Green is founder and CEO of deVere Group. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.

© 2021 Newsmax Finance. All rights reserved.


NigelGreen
A group of users of Reddit, the social media platform, turned the tables on Wall Street on Wednesday, pushing up the prices of previously unloved stocks in firms such as aging video games high street chain GameStop.The Reddit community r/wallstreetbets, which has 2.8...
reddit, gamestop, main street, wall street, traders, bubble, short selling
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2021-02-28
Thursday, 28 January 2021 10:02 AM
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