way and the camaraderie of sharing the gains
and losses with others on the internet.
In the long term, a Wall Street adage says that
“the fundamentals” always win out. That means
a stock’s price eventually settles where it should,
based in part on how much profit a company is
producing. The recent plummet back to earth
for GameStop’s stock may be proof of that.
What GameStop did, though, was show how
a group of smaller investors banding together
can dramatically push up a stock in the short
term. Many market watchers believe hedge
funds and other professionals also played
a role in GameStop’s surge, but they were
likely only accelerating the spurt sparked by
retail investors.
The market had seen similar events before.
Last summer, Wall Street was shocked as
shares of Hertz rose even though they were
on the road to likely becoming canceled
and worthless, because the company was in
bankruptcy protection.
The movements can be even more spectacular
if a stock has heavy bets built up against it,
bets that would profit if its share price were
to fall. That can trigger what’s called a “short
squeeze,” where a rise in a stock’s price pushes
skeptical traders to scramble out of their bets.
To do so, they have to buy shares of the stock,
which pushes the price even higher and creates
a feedback loop. GameStop was an extreme
example because some of its shares had been
sold short multiple times.
Now, smaller investors are the ones who could
be doing the squeezing. Collectively, they
account for 20% of all trading volume, said