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The GameStop Saga: What happened?

26th February 2021 Print

If you’re wondering what the GameStop saga is all about, then look no further!  Find what how and why it happened and who stood to profit. 

The GameStop Saga Explained

Before we unpack what can only be described as the GameStop saga, let us first establish what exactly GameStop is and why it’s trending.  If you’re not in the know, then you’ve likely come across words like “GameStop”, “Reddit” and “stock market” in your news feed. But what does it all mean? How are these entities all connected? Let’s start with GameStop. As is indicative in the name, GameStop is an American high street store that specialises in consoles, games and other electronic devices. The chain itself is nothing to write home about as it’s one of many that offer the same types of goods and services. In fact, due to the global circumstances of 2020, GameStop wasn’t exactly doing a roaring trade.

How does Reddit fit into all of this?

Like Twitter and Facebook, Reddit is a social media website that offers its services for free but for $6 a month will give you a premium package. Reddit allows the user to join various social forums about topics of interest. Of particular interest to this story is a forum called wallstreetbets. Over 4 million people subscribe to this forum which facilitates all kinds of discussions around stock prices, where to invest money, and if what transpired with GameStop is anything to go by, then CFD and gaming stocks this year to purchase.

And then what happened?

As mentioned, the global affairs of 2020 were giving GameStop a pretty hard time – business was not thriving. Also, because of these conditions, more people were making online purchases or partaking in mobile gaming instead. Now when it comes to those who buy and sell stocks, something that often happens in the financial fraternity is the betting on which companies are not going to do well.  This involves borrowing shares in the company (in this case GameStop) and then selling those shares with the intention to buy them back at a later date. If the belief is that the company is sure to tank, then when you buy those shares back, you’re sure to make a profit as you’ll pay less.

To illustrate the matter in layman’s terms, let’ assume you’re a big Pokemon fan and you borrow a specific card from a friend because you think the price of the card is going to fall. You also tell your friend that you’ll return the card in a month’s time and off you go selling the card for $5 under the assumption that as more cards flood the market, the value will drop to $2. When the time comes, you buy the card back and net yourself $3. This simple analogy is what is referred to in the industry as shorting or short selling and can be compared to gambling.

A dramatic turnaround & Elon Musk

GameStop was one such company ripe for a shorting, but instead what happened was the complete opposite, and it all happened because of the power of social media...and some help from Elon Musk.  All those chaps and chicks on the wallsteetbets Reddit Forum decided to buy shares in GameStop whereby drastically increasing the price of a single share. As a result, all those who were betting on the GameStop shorting had to buy their shares back with no profit in sight. In addition to this, Billionaire and social media influencer Elon Musk sent out a tweet referencing the wallstreetbets forum where he is fondly referred to as Papa Musk.

What does it all mean?

For many involved, the GameStop saga was amusing while also demonstrating the power of social media. Wall street aficionados have called it “insane” and a “phenomenon”.  Others have called it a story of revenge against the big money companies responsible for the crash of 2008. At the end of the day, it was the power of many to institute change, if just for a little while.