GameStop is being called the Blockbuster of the video game world. As more people download games there is a smaller need to have a physical disc or cartridge. That means the need to buy, sell and trade the physical game media has diminished. This has led people to believe the company is going to struggle and possibly go away.
Hedge funds see this as an opportunity to make money. They short the stock.
When stock traders short a stock, they are betting the stock will go down in value. This, of course, is a gamble. But those who are savvy with stocks do research and make educated decisions.
How is shorting a stock a gamble? I hope this does not overly simplify shorting.
Those who short a stock borrow the stock from someone who owns it. They pay a fee to the stock owner to borrow the stock. Then they sell the stock for the current market value. After waiting a period of time, and hoping the stock has dropped in price, they purchase the stock — at the lower price. After re-purchasing the stock, it is returned to the owner. Those who shorted the stock made money because they sold when the value was high and purchased when the value was low. The difference between the selling price and the purchasing price was their profit, minus the fee.
With that in mind, here is a brief overview of what happened with GameStop. Someone, who also is savvy with stocks, did research and noticed huge shorts of GameStop stock. He encouraged others to purchase GameStop. This caused the stock value to increase. As the stock went up those who had shorted the stock (borrowed and sold it) were in a pickle. They must repurchase the stock so it could be returned to its owner. But instead of the price being lower, as they had hoped, it was higher. That meant every share that needed to be purchased was more expensive. That equated to a loss.
Those who shorted the stock decided to purchase the stock, at a loss, in order to cut their overall losses. Those purchases caused the value to increase. Therefore, others who shorted the stock felt they needed to buy in order to cut their losses. They purchased the stock which pushed the price even higher yet. It was an upward spiral.
Those who shorted the stock lost great fortunes – billions of dollars. This got the attention of some of those in the government as well as trading companies. Some trading companies stopped their customers from purchasing the stock. This enraged us peasants.
The big picture fallout from this spectacle is interesting. It seems to have shown true colors of the left and right. I have heard many on the right who cheered on the little guys who stuck it to the big guys. I heard many on the left who wanted there to be an investigation into stock manipulation. After all, how did the dumb common folk outsmart the big hedge funds without manipulation? The left had to look out for their donors.
The left appears to support big business and the right is for the people. I would argue the right was always for the people. The right wants the government to get out of the way of the people to preserve liberty and freedom. The left has always been for big government to run — or ruin — our lives.
Today the big businesses are becoming a visible extension of the big government in a number of quite scary ways. In fact, more donations from big businesses go to Democrats. On the federal level, in 2020, the top 51 corporate donors sent nearly a quarter of a billion dollars more to Democrats.
Don’t kid yourself the right has always been for the people but it wasn’t always obvious because of the web of deceit spun by those on the left.
Scotty Anderson is a computer programmer who enjoys serving the community through various community-oriented service jobs.