NASHVILLE, Tenn. (WTVF) — Middle Tennesseans who bought into the hype around GameStop (GME) stock woke up to crushing news, Thursday.
The popular online broker app Robinhood put a halt on several climbing stocks, including GME. The stocks involved are all linked to a subreddit community called WallStreetBets (WSB). The group was pushing for members to invest in GME to achieve what's called a short squeeze.
A short is when investors bet a companies stock value is going to decrease. They benefit from the perceived loss of value. The subreddit in this case wanted to drive up the price of GME by flooding it with purchases, increasing the value, and causing hedge funds who were invested in the short to lose money. That's a short squeeze.
"If you get enough people buying, now you're going to affect the stock, supply and demand," said Hank Parrott, a finance expert and president of Estate & Financial Strategies, Inc. "So, the stock price goes up. Now, you're driving the cost of the person who bet it was going to go down, you're putting them in a bad position. The more it goes up, the more money they're losing."
In Tennessee, some locals bought into GME. Gabe Farmer, who said he is an amateur investor, heard about the push and invested $1,100 in GameStop last Wednesday. A week later, the stock value had risen from $40, to more than $360. He cashed out a majority of his stock and earned $12,000.
According to Farmer, and many on WSB, the goal was to try to teach Wall Street a lesson.
"The hedge funds were shorting stocks for years," said Farmer. "Now, they're losing at their own game and crying foul."
However, when Robinhood decided to close investments on a number of the stocks targeted by WSB, the stocks tumbled downward. It created a wave of backlash on social media.
Texas Republican Senator Ted Cruz retweeted New York's Democrat Representative Alexandria Ocasio-Cortez, in a rare show of support and agreement.
Elon Musk also tweeted about it today.
u can’t sell houses u don’t own— Elon Musk (@elonmusk) January 28, 2021
u can’t sell cars u don’t own
u *can* sell stock u don’t own!?
this is bs – shorting is a scam
legal only for vestigial reasons
Many investors have decided to stay in the stocks that were restricted.
Nashville resident Josh Lyles owns a more diverse stock portfolio and has invested for several years. He said he plans to continue to hold his GME.
"For some of these people this is life-changing money," said Lyles. "The majority of the people in the Reddit thread are trying to hold because a lot of them are motivated to take down some of the top hedge funds who may have gone against them in the past for some of the stocks that they had and haven't been able to win."
Parrott said he believes while maybe some of the individual investors have that goal, many are in it to try to ride the wave and make money. Both Parrott and Lyles agree that betting on these stocks is risky, as the companies value is not reflected by the inflated stocks.
"Playing the game that's a short day trading kind of a deal can burn you pretty easily can be a bad deal," said Parrott. "To the regular investor out there, it's not like this stock is suddenly worth, a stock that was $10 a share now it's worth $100 a share. That's not actually happening."
Thursday evening, Robinhood said it would allow limited buying on the stocks it halted Thursday morning.
"Amid this week's extraordinary circumstances in the market, we made a tough decision today to temporarily limit buying for certain securities. As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today."
On the website's blog, they went on to explain the halting of stocks was a "risk-management decision".
Investors who lost out because of the move are skeptical, though.
"Big money always wins. So, I'm sure they will put some new regulations in. I'm sure there will be a lot of SEC investigations," said Farmer.