Melvin Capital was betting that the shares of video game retailer GameStop would decline. Thousands of young people want to prevent this and have been buying like crazy ever since.
An unbelievable duel has been going on on the US stock exchange for almost a week: A hedge fund with almost 12.5 billion US dollars in management capital against several thousand very young hobby investors who gather in an online forum. Both sides are fighting for the stock exchange price of the stumbling GameStop group. What may seem like an unequal duel has something of David versus Goliath: Because the major investor now has to worry about his billions.
What happened?
The well-known video game retailer GameStop is doing badly. The international chain with more than 5,000 shops and almost 50,000 employees specializes primarily in the purchase and sale of used video games, consoles and gaming accessories. That is why it has long suffered from the fact that customers nowadays more and more frequently make online purchases and simply download their games. The corona crisis with its worldwide lockdowns accelerated the negative development again.
Several large investors have therefore, so to speak, bet that the price of the GameStop share will fall even further in the next few weeks. This process is called shortselling: large investors discover stocks that they consider to be overvalued. With the help of short sales, they subsequently benefit from when their price actually falls. The US hedge fund Melvin Capital participated in the short-selling of GameStop shares to a particularly large extent.
GameStop is a very popular company, especially among young people (no similarly large retailer buys used gaming accessories). In addition, the Internet brings about very special phenomena, especially during the corona pandemic, when boredom occurs in lockdown. So it happened that in the course of the past week on the online portal reddit in a forum for young hobby speculators called r / wallstreetbets, several users called on to buy GameStop shares – to save the price of the ailing group and the major investors To bring losses.
Taken billions by 20-year-olds
That worked extremely well. Since mid-January, the share, which is on the downside, has jumped from 18 to more than 360 US dollars. This is a huge problem for Melvin Capital: As a result of this stock market duel, they lost almost three billion US dollars in less than two weeks.
The trend seems to be unstoppable: The young people see themselves strengthened by the rising share price and the associated reporting, more and more of them are raving about reddit to get tips, invest and then hold on to their securities.
GameStop will be happy: Your course continues to rise, so that on Tuesday evening even Tesla boss Elon Musk, who has recently become the richest man in the world, shared the link to r / wallstreetbets on Twitter, only intensifying the rush.
Gamestonk !! https://t.co/RZtkDzAewJ
– Elon Musk (@elonmusk) January 26, 2021
For young investors, it is now about more than just saving a company that is nostalgically valuable to them. The majority of the people who gather on reddit are well under thirty and speculate as a hobby, as a sideline. Now this online-savvy generation is feeling for the first time what power it can exert on the market if only enough of them gather behind something.
Playing with GameStop shares has become an act of rebellion against the Wall Street establishment for them. Their goal, as can be seen from several posts in the forum, is to drive Melvin Capital into ruin. If it succeeds, one can assume that it will not be the last attack on the stock market elite.
