The GameStop stock is plummeting, but the Reddit rebellion is just beginning

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This is partly due to trading restrictions by Robinhood and other brokers on the number of volatile shares, such as GameStop, I HAVE C (I HAVE C), Express (EXPR) and Nokia (ENOUGH) which retail investors can purchase from a single stock at a time.

But sharply shortened stocks could end up in the rally again. In fact, on Tuesday, Mark Cuban asked members of the RedSit WallStreetBets community to stay on course with actions such as GameStop.

“I have no doubt that there are funds and big players who have shortened this action again, believing that they are smarter than everyone on the WSB,” Dallas Mavericks owner and investor Shark Tank told a Reddit AMA. “I know you’ll hate hearing this, but the lower it goes, the stronger WSB can step up to buy the shares again.”
The Dow is rising as stocks recover from the GameStop craze
After all, retail investors have proven that they can push hedge funds – and will probably start focusing on other stocks and commodities that they think can (and should) go higher.

“Social investment will not go away,” said Kerim Derhalli, CEO and founder of Invstr, a trading application. “This is a strong business trend and we are at the beginning of it. People have more information and power.”

Younger investors have taken control of the market

Derhalli stressed that as younger investors start buying and selling shares, the market will have to adapt. He said the rise of other popular actions, such as Tesla (TSLA) and Beyond Me (BYND)It is partly due to the investments of Millennials and Gen Zers in brands that they know and like.

“Younger retail investors are connected to the changes that are taking place. They understand consumer trends, because they are the ones who make and create them,” Derhalli said. “There are some Millennials who make a lot of money and there are angry hedge funds that retail investors have joined the game and are defeating them.”

However, a number of Wall Street veterans are concerned that this will not end well for smaller investors.

They point to the collapse of the dot-com / tech stock in 2000 as a sign of what can happen when retail investors become overly enthusiastic and lose focus on fundamentals such as sales and earnings – not to mention valuations.

10-year-old investor makes big money on GameStop shares for Kwanzaa

Back then, trading frenzy was built on message boards like Raging Bull and Yahoo Finance, unlike Reddit and Twitter.

“This is worrying and disconcerting. It could be again in March 2000,” said Richard Smith, CEO of the Foundation for the Study of Cycles, a research firm.

“What has done this more than anything is to show how gamified the stock market environment is, and hopefully people will ask whether or not we want markets to work,” Smith added.

If average investors are burned by stocks like GameStop, this could lead to less confidence in Wall Street and the wider market.

Some less experienced investors could give up ownership altogether – as many individuals did after the collapse of 2000 and again when Lehman Brothers imploded in 2008.

“The market will be destabilized. Too many people will lose money. Fewer people will trade – not more,” said Sergey Savastiouk, founder and CEO of Tickeron, an artificial intelligence platform for traders and investors.

“What happens with GameStop and AMC is like driving without a license,” he added.

This time it might actually be a little different

But there are some major differences between now and two decades ago – not to mention the Great Financial Crisis of 2008-2009, a time when social media and free online trading were not as pervasive as they are now.

Average investors can now trade more efficiently and profitably thanks to commission-free brokerage firms such as Robinhood – a move that has essentially forced all other major brokerages to give up commissions.

The growth of fractional trading (i.e. holding a fixed dollar amount from a high-priced stock such as Amazon or Alphabet) and the popularity of indexed ETFs also make it easier for investors to buy small chunks of many stocks.

And the Reddit megaphone is significantly stronger and more influential than the old chat forums of the late ’90s.

“This trend will not end soon. There are some investors who play in the arena of individual stocks only once. But there is a fear of losing,” said Gust Kepler, founder and CEO of BlackBoxStocks, a trading software firm.

“This may not sound much different from the late 1990s with day traders, but now social media is increasing the ability of investor groups to come together and share information in real time,” Kepler added.

In this direction, even Smith from the Foundation of Cycles expressed his dissatisfied admiration for Reddit marketers who learned how to stick it to short sellers.

“I have respect for those who saw what was happening, how it worked and exploited it,” he said. “But what value was created?”

Shares like GameStop and AMC do not grow in value because they generate high revenues and profits, pay high dividends or add significant juice to the economy by creating thousands of jobs.

But that doesn’t make sense. There is no rule that investors should only buy large blue chip companies. Some investors are tired of buying more securely, passively manage index funds and want to bet.

“Individual investors are often considered risk averse. But not all are,” said Josh White, a finance professor at Vanderbilt University and a former SEC economist. “Some people prefer what is more of a lottery.”

“Actually, they can lose often, but from time to time they will hit a round like GameStop,” White said. “As long as there is great success, people will continue to play.”

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