The GameStop situation is "fascinating and fun to watch," but most people are better off on the sidelines, says Sarah Newcomb, director of behavioral science at investment research firm Morningstar. "Investments that are geared toward longer-term goals like retirement, your portfolio is comprised of higher-quality names that aren't subject to these shorter-term market whims," he says. The rest of the market is still behaving rationally, to the benefit of most average investors. The good news is that so far, the mania is only influencing a handful of businesses, adds Fehr. If you have no experience dealing with that kind of thing, you will lose your money very, very quickly." "The stock can drop precipitously in a matter of seconds or minutes. "This is tremendously dangerous for retail traders who haven't traded before," says Royal.
Along the way, the users have been encouraged by Musk and fellow billionaire Chamath Palihapitiya, CEO of venture capital firm Social Capital. "It happens all the time, but it doesn't tend to play out in this public or dramatic a manner."įor some followers of the subreddit, buying GameStop stock is both a troll of the hedge funds they call "parasites," and a real attempt at making big bucks. This so-called "short squeeze" isn't unusual, says Craig Fehr, investment strategist at Edward Jones. That increases demand for the shares, which increases the price even more. In turn, Wall Street pros betting against the stock have to run and cover that short position by buying the stock as well. In other words, they are betting on the stock price dropping.īut Redditors are snapping up shares and stock options in GameStop en masse, knowing their momentum together is sending the stock price up. It works like this: Many hedge funds have taken short positions in companies like GameStop, in which they borrow shares of the stock at a certain price under the expectation that its market value will be worth less when it's time to actually pay for those borrowed shares. These retail investors have beaten Wall Street at its own game, at least temporarily.
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