GameStop And The Stock Market: What's Going On?
MINNEAPOLIS (WCCO) -- The Dow Jones Industrial Average lost more than 2% Wednesday in Wall Street's worst trading day since October.
But there have been several big winners this week, with one in particular stealing headlines: GameStop.
The video game retailer's shares rose 134% in an unlikely rally. Over the last week, online buyers drove stocks up nearly 800%. Nothing about GameStop screams "sound investment opportunity." The brick-and-mortar retailer has seen sales decline and stores close as the market to buy video games shifts online.
So then why did someone like Anthony Kriens, a casual observer of the stock market, buy stock in GameStop Monday? It started with a suggestion from a trusted friend, then some quick internet research.
"It was based almost just on memes and wild hype on the internet. There was no scientific backing to it whatsoever. It's just kind of a good feeling I guess," Kriens said.
Kriens, an example of the internet investing community, led by Reddit page WallStreetBets, rallying behind GameStop and other struggling companies like AMC Theaters and Nokia. Their move is in direct contrast of big-time hedge funds, says retired finance professor Chuck Hannema.
"When you do that in a group, that can move stock price really rapidly," Hannema said.
To summarize what's happening on the market, big-time hedge funds are short-selling GameStop. That means they're betting its stock price will drop and they'll make money later on. But on the other side, a mass of amateur internet investors is buying GameStop stock, causing its stock price to soar. It's led to big gains for them and bigger losses for the hedge funds
"It's been pretty wild this week just watching it go and being a part of it," Kriens said.
RELATED: Is GameStop's Soaring Stock An Indicator Of Possible Market Bubble?
Since Monday, Kriens investment has tripled. It's an exciting but unpredictable run.
"This activity is not investing. This activity is trading, and the next level from trading is gambling," Hannema said. "I think if they're looking to do that, they could just as well got to the casino and go to Vegas."
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He cautions against jumping into this volatile investment style, in which stock prices could fall as quickly as they rose. That's why he feels casual investors should focus long-term.
"Just stick to your objectives and hold tight to those, which is a really difficult thing to do when there's a lot of news, a lot of clamoring going on," he said.
Kriens is trying his best to not constantly monitor GameStop's stock price, although he admits that hasn't been easy. Trying to remove emotion, and greed, is part of his mentality.
"I got my limit sale order in. I just gotta wait for it to happen," he said.