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The Student Newspaper of MAST Academy, since 1991.
The Student News Site of MAST Academy

The Beacon

The Beacon

GALLERY: Prom 2024
GALLERY: Prom 2024
April 7, 2024

Diamond Hands: How individual traders drove GameStop stocks up 2000%

By Milo Akerman
Staff Writer

In September 8th, 2019, a Reddit user by the name of u/DeepF**ingValue (abbreviated as u/DFV) uploaded his earning report to the subreddit r/WallStreetBets. He had invested $53,000 dollars in GameStop, eagerly awaiting the new quarterly earnings report, and had almost doubled his money that same day. The earning report, however, was what he described as a “Chernobyl experience.” He lost upwards of $15,000 dollars, but he still held strong. He held strong, in fact, for two whole years to come.

Then came COVID. GameStop closed most of their stores, driving the share price from about five dollars to barely three. Red flashed all across u/DFV’s screen. But did he sell his shares? No. In fact, he did the opposite. He bought a thousand more shares, from a dying company, in the middle of a pandemic. But why– people asked– what reason could he possibly have? Concerned comments started appearing. One commenter warned him: “[I]f there’s one stock that could lose 30% in one day it’s GME, watch out.” Other users simply asked why. But he stood determined. u/DFV bought even more shares. One could only wonder how much money he was determined to bet.

Throughout 2020, u/DFV steadily gained money. He went from 100k, to 600k, then 800k and then surpassing a million. But this wasn’t even close to the madness that would come in 2021. Around January, users in r/WallStreetBets realized that hedge funds, specifically one called Melvin Capital, were conducting a short-sell against GameStop. In essence, a hedge fund will borrow stocks from a third party, sell them, and then wait until the price drops before buying them again and returning them to the borrower, earning money from the difference. Users decided to join u/DFV in a squeeze, where retail traders, such as those in r/WSB, buy lots of shares in a company, artificially driving the share price up. Juan Gabriel Roca-Paisley, a Florida State University sophomore, had invested in AMC stock (which went up along with GameStop and a few others) barely a few days before, predicting AMC stock would rise thanks to the fall of Regal Cinemas. Thanks to his lucky investment, he managed to soar from $40 dollars to over $200.

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The squeeze also triggered a wild couple of weeks in which news sites struggled to protect the integrity of GameStop stocks by announcing regularly that short sellers had closed their positions, meaning holding the stock up was useless. r/WSB, on the other hand, insisted that its members hold and not sell stock, despite the giant profit they could have made. This ultimately resulted in many people losing huge amounts of money. In Gabriel’s words, when investing in a squeeze, “the last one standing loses.” During this period, the most used consumer platform for trading stocks, Robinhood, limited the ability to buy shares. This prompted some users to switch to other e-trading sites and some even to file class-action lawsuits against the company.

Ultimately, this situation is rather nuanced: it’s hard to tell for sure why some platforms imposed more measures than others or why exactly they did. However, it shows that stock trading is difficult. Roca-Paisley suggested that the best strategy for trading during a squeeze is to get an amount of money you’re comfortable with and back out to avoid losses. The stock market can make you rich or take everything from you, and the outcome depends heavily on close analysis, experience, and always a little luck.

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Diamond Hands: How individual traders drove GameStop stocks up 2000%