A David v Goliath battle has broken out in the USA over the share price of a shop that you’d expect to collapse when the lockdown began. GameStop is computer game and merchandiser with more the 5,500 stores across the globe that began life in 1984 as Babbage’s in America. The lockdowns have forced the company to shut hundreds of its shops and it was expected to see a massive drop in its value. And that’s where the story took an unusual twist.
The Big Short
In Adam KcKay’s movie The Big Short brokers realised in 2007 the housing market was overpriced due to the selling of mortgage bundles to banks containing sub-prime mortgages – basically valueless deals sold for a fortune. The brokers took out deals with the banks to bet the values would fall which they did earning them millions and ruining the banks.
Now the same is happening with a number of businesses hit by the pandemic. Brokers are betting on the collapse of share prices of businesses hit by the pandemic with the most high profile one being GameStop. Once it was known there were bets on GameStop’s shares going down fans of the shop that included thousands of gaming fans who loved the stores began to buy its shares to foil the brokers. Information about the fortunes of the store were shared on a forum on Reddit’s WallStreetBets which when shut down due to some of the content and views expressed there saw GameStop’s shares drop 20% – although have since recovered. The question is will they stay high when their shops are closed?
Ian Carrotte described the phenomenon as ‘an existential threat’ to conventional trading on Wall Street as it showed how consumer and small citizen share-holders could challenge the accepted norm of the market. He said: “It is an example where share activists who have a passion for a company and don’t want it to fail can collectively contradict the norms. Long term though you can’t buck the market and it is hard to see GameStop not suffering from market trends. When you could download a game online and didn’t have to go to shop the market shifted. What is interesting is whether the GameStop experience happens in this country with other ailing brands.”
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