GameStop Stocks Hit Record High. Should You Buy?

Wall Street firms are stunned as small traders continue to band together and push GameStop stock to record highs. We know what you’re thinking: wait, GameStop is still in business? The struggling retailer welcomed Chewy Co-founder and former CEO Ryan Cohen to its board on January 11 with a 9% stake that he later upped to 13%. This was the start of the rally. 

[ Read: Here’s What Happens to Your Stock if a Company Goes Bankrupt ]

Then r/WallStreetBets, a popular subreddit, entered the scene. Reddit users and retail investors realized that if they worked together, they would be able to manipulate stock prices by making bets on a rising market set to expire quickly. The subreddit was temporarily closed to the public on Wednesday and stocks briefly experienced a 20% drop. Trading platforms like Robinhood have limited the trading of Gamestop and other companies like Blackberry, Nokia and AMC, in an effort to combat the surge.

After receiving backlash after limiting free trading, Robinhood doubled down on its decision on Wednesday by saying “we continuously monitor the markets and make changes where necessary.”

The company is up 1,700% just this month. This attracts short investors, who bet on other investors’ stock, and sell it to buy it back when prices fall and return it to the original owner. Ultimately, they make money off of the difference in stock price. 

What happens if the stock price goes up?

Calls to continue to buy more shares and get out of the trade can cause prices to spike — causing what’s known as a “short squeeze.” Experts say the trend won’t last, citing price and low valuation levels as unsustainable. Yet, the online movement hasn’t shown any signs of slowing. 

Is GameStop the unicorn of 2021?

Short squeezes aren’t limited to GameStop. We’re actually seeing them across the market in both Bed, Bath & Beyond and AMC. BBBY currently has around 64% of available shares tied up in short bets. If both companies see stock prices go up, too, this means that short-sellers have to rush to buy back shares or accept losses. AMC surged 300% on Wednesday alone.

Should you buy a stock?

When online message boards encourage you to buy stocks, should you? The average person probably shouldn’t — unless you have money in your budget set aside for investing. Additionally, there is a significant risk involved. 

[ Read: 12 Things You Need to Know Before Investing in Stocks ]

It is also undeniable that some have made millions on the squeeze. But you never want to ignore the fact that there is a chance to lose it all. It’s not unusual to experience some losses as investment values go up and down, so understanding how to bounce back is key to protecting your finances. If you do decide to try your luck, just do us a favor and don’t hold the billion-dollar payoffs as the standard.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Image credit: rblfmr / Shutterstock

Taylor Leamey

Personal Finance Reporter

Taylor Leamey is a personal finance reporter at The Simple Dollar who specializes in personal loans, student loans, mortgages, renters, and financial policy. Her reporting has also been featured at CreditCards.com, Interest.com, Reviews.com, MyMove.com, and elsewhere.

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  • Andrea Perez
    Andrea Perez
    Personal Finance Editor

    Andrea Perez is an editor at The Simple Dollar who leads our news and opinion coverage. She specializes in financial policy, banking, and investing.