GameStop Shortage Shortchanges Young Investors
How the extreme shortage of Gamestop will affect prospective young investors.
-Written by John McKiernan ‘22
The stock market is a hard game to play for people just beginning to trade. This was on full display in January of 2021, when GameStop, a company who lost $215 million in 2020 and on the brink of bankruptcy was shorted to such an extent by investors that it almost resulted in the end of this gaming retailer. Traders from CNBC called this situation, “Volatility on steroids”. Manhattan College Investment Club President Kieran Varga was committed to getting the word out and warning students to be careful on which companies they wish to invest in, and to warn students about potential shortages in the market.
Short selling is defined as an investor borrowing multiple stocks with the idea that the stock will increase over a period of time. Once the stock increases, the investor will sell the stock, making profit on that company. The investors would benefit from the decline of the stock. This short selling not just affected GamesStop, but other large retail chains such as Bed Bath & Beyond, AMC, and others that were on the verge of bankruptcy.
As the President of Manhattan College’s Investment Club, he oversees approximately $70,000 of the clubs portfolio, which includes companies such as Tesla, Microsoft, and Cloudera.
“I do not agree with what happened with GameStop, I think that they are a fundamentally dying company” said Kieran. “There are always these types of short squeezes by these major hedge funds that come in and buy all of their put options”.
Within recent years, the popular video game retail store has been struggling to compete with other competitors in the gaming industry, such as the Playstation Network and xBox Live. Wall Street investors noticed the decline of the GameStop stock and decided to short sell the stock.
The situation was mainly caused by platforms such as Robinhood and Fidelity not correctly regulating their platforms, as well as various Reddit forums, which directly impacted the stock market by targeting companies like GameStop. As users of these trading platforms, Varga stated that they should have paid closer attention to the situation that was occurring with GameStop, and other companies that were in the brink of bankruptcy.
Investing in safe stocks is what many early investors choose to do, as it helps in the long run when you are able to use extra money and put it into a potentially big company. Investings is something that we will all inevitably need to learn how to do, so why not learn how to start to do so safely?
In this podcast, Kieran explains in depth how young investors can protect themselves in which companies they plan on investing in, which applications they use to trade, and how to monitor their stocks.