GameStop and the
Future of Investment By Matthew Shepetin

In the age of social media, it is easier than ever for a group of individuals to band together, organize, and take action against inequity. In January, this is exactly what happened. Over the course of just a few weeks, millions of people came together via social media to artificially inflate the stock prices of declining companies like AMC, Nokia, and most popularly, GameStop. Before understanding the repercussions, it is first important to examine what happened to the stock market earlier this year.

 A “short” is when a company borrows a stock, sells it to another investor at its current price, buys that same stock back when it has decreased in value, and then returns it to the person or company it had borrowed from originally. Companies short stocks of firms they believe to be overvalued and soon to lose value in the market. If a stock that is expected to decline in value instead increases in value, the investor is forced to buy back that stock for a higher price than they had originally sold it for. This is exactly what happened in the case of GameStop. A Reddit user noticed that 84% of GameStop shares were owned by investors who intended to short the stock. He then posted to r/Wallstreetbets encouraging his fellow investors to buy as much GME stock as possible to artificially inflate its price. Millions of Reddit users followed this plan, wanting to prove that it was possible for people of the lower and middle classes to overcome powerful Wall Street elites. Because millions of “ordinary” people worked together to raise the price of GameStop stock, large investment groups like Melvin Capital shorting the stock were forced to buy back their shares for millions, even billions more than they had sold them for. Predictably, many of these investment firms went into crisis mode as they simply did not have the assets to pay for their failed shorts.

Examining how, and why, the GameStop bubble occurred can give us important insights into the future of investment. First, all of this trading was made possible by companies like Robinhood and E-Trade, which provide low-cost access to the stock market and investment resources. These companies make it easy for the general public with little to no knowledge of the stock market to make small, lower-risk investments. Essentially, Robinhood and E-Trade have made the stock market easy, accessible, and main-stream. Social media, though, is the largest factor in why bubbles grew so large and captured so many headlines. Similar to countless other trends, the GameStop surge rose to popularity through the positive feedback loop of the meme. Members of r/Wallstreetbets created memes about their experiences, and these memes spread throughout the forum as well as to other social media platforms such as Twitter, Instagram, and Tiktok. These memes were then able to capture the attention and interest of a wider audience, prompting many to invest themselves. As more people invested, more memes were generated, ultimately involving more of the general public. Even billionaire Elon Musk took part in the frenzy, tweeting “GameStonk!!” and attaching a link to the r/Wallstreetbets Reddit forum. According to CNBC, GameStop stock rose about 60% in the hours after Musk published his tweet.  Eventually, many of these memes became so widespread and generated so much investment that the GameStop boom began to make national headlines. Like all bubbles do, though, the GameStop bubble burst. Melvin Capital and similar groups got government bailouts to buy back their shorts while Robinhood and E-Trade limited how many individuals can invest at one time.

The manner in which the GameStop bubble came to be, and how it burst, tells us a lot about the future of the stock market. The buzz surrounding GameStop was generated by the virality of memes. A meme’s ability to spread throughout the internet and capture the attention of millions of citizens has made spreading large movements significantly easier. Additionally, the anonymity of many social media platforms makes organizing actions far more accessible, as its participants do not face the risk of being exposed for their actions. In the case of GameStop, viral memes about trading its stock, as well as memes targeting the elite, empowered millions to participate in the movement and buy GME shares. Veljko Fotak, associate professor of finance at the University at Buffalo, says that while the GameStop bubble resembles many stock market bubbles from the past, what sets it apart “is the scale and speed of the event.” The price of GameStop stock rose hundreds of points in just days, but it fell the same amount a week later in the same time frame. Additionally, unlike regular conditions, GameStop boomed under the hand of millions of small, independent investors rather than a few large investment firms.  Social media’s enduring presence in today’s society indicated that we should come to expect its role in the stock market to become more consistent. What this means is that we can come to expect higher levels of volatility in the stock market: faster and larger booms accompanied by similar bursts. In exchange, more “ordinary” Americans may feel compelled to invest in the stock market. This would ultimately create a more equitable system that takes power away from a few wealthy elites and puts it back into the hands of the people.

This change can already be seen in statistics gathered from The Harris Poll. Their study (which you can see if you visit this site), conducted shortly after the GameStop boom, found that over a quarter—28%— of all Americans had recently bought a viral stock. Additionally, 40% of Americans own a brokerage account, but of those, 43% had created theirs in just the last month. These facts point to bigger trends in the economy. With the internet making it easier for more people to gain knowledge about the stock market, and with social media making investment trendy, the stock market may see a larger portion of investors coming from working and middle-class populations. 

These statistics feel very optimistic, but the GameStop story, and the manner in which its stock price fell, paints a bleak picture. Just days after the initial surge, Discord, Reddit, and Facebook all banned communication about GameStop as well as communication about other stocks that surged at the time. These bans limited the levels at which ordinary buyers could get information about the stock and organize to buy. Additionally, Robinhood, the most popular site for beginner investors, limited the trading of GME, Nokia, AMC, and others. Although these decisions were met with widespread backlash from both the public and government officials (this may have been the first and only time that Ted Cruz and AOC have actually agreed on something), the bans worked as intended; GME and others quickly began to fall. Essentially, Robinhood sided with its corporate partners who were losing money fast.

February came with new sentiments—as GME and others continued to fall, even the most influential Reddit users became wary of holding. Many had already lost hundreds of thousands of dollars. Today, “gamestonk” is down to $45 from its high of almost $400. With Melvin Capital, being bailed out by another hedge fund and receiving aid from the government while the stock market almost back to its normal levels in just a matter of days, it is easy to feel like these large Wall Street companies (along with the support of the government) will always win. Regardless, the GME surge has set a precedent. This is the first time in which average citizens have banded together to (almost) win over Wall Street. Additionally, this may be the first time in history that organization over social media has played such a large role in the market and caused such extreme volatility.

The implications go two ways. On one hand, more market volatility from social media may push the federal government further and further into the stock market. This means more bailouts and more benefits for large trading companies. On the other, Reddit showed us that organization on social media is a powerful tool. With this knowledge, changing the landscape of the stock market may be hard, but possible. Nevertheless, what happened this January has changed the way the American public sees the market. People once again are becoming aware of the inequities of our financial system and are no longer content with seeing over-powered Wall Street corporations exploit the stock market and the individual for their own profit.

Whether the events of this year will mark the beginnings of a movement to bring the stock market back to the people is hard to know. Certainly, though, Redditors have opened the eyes of the average citizen to just how unequal our financial system can be. And with the power of social media on our side, anything seems possible.

Matthew Shepetin ‘24 studies in the College of Arts & Sciences. He can be reached at m.r.shepetin@wustl.edu.