A GameStop store in Hollywood, California, busy with customers waiting in line on January 27, 2021 to enter the video game retailer.
AaronP | Bauer-Griffin | GC Images | Getty Images
Trading in GameStop has reached feverish levels and shows little sign of breaking.
Despite the drop in prices during Thursday’s session, after several brokers set limits on buying and selling, the share is up 500% in a week.
This is possibly just the beginning of a new wave for Wall Street.
“People say ‘Screw Wall Street,'” said Alex Imas, a behavioral economist at the Booth School of Business at the University of Chicago.
Imas said we can see a big change in the power of social media networks when it comes to influencing tradable assets.
“What we’ve seen from this episode with GameStop is that networks like Reddit have the power to move a stock faster and further and last longer than believed, and coordination on these platforms allows it.”
Investors have become accustomed to a system where the stock market provides a place where people get independent signals and decide for themselves whether it is time to buy or sell. Imas said: “these social networks, which can form a platform for the large-scale coordination of an idea, can divert an asset from its fundamental value.”
Traditional Wall Street analysts covering the bad video game trader clearly do not believe there is a fundamental issue that the stock will rise by 1,400% in the first few weeks of 2021. As GameStop rose to stratospheric levels, Bank of America stock analysts again urged investors to take their profits now.
In an investor letter on Wednesday, they said the stock was only worth $ 10 a share.
“The more business of in-store transactions, the more difficult it will be to sell high-margin goods and collectibles,” which accounted for 46% of GameStop’s sales in 2019, analysts said.
Of the six analysts covering FactSet shares, the highest price target is $ 33 per share. As of Thursday afternoon, the stock was trading at nearly $ 215 per share after falling from a $ 483 per share session.
There are other examples of when prices rise, of fundamental value, but not so – where a group of people suddenly decide to coordinate to rush a stock. Anything with a dot-com suffix rose during the late nineties during a technological boom in stock market experts.
Alan Greenspan, former chairman of the Federal Reserve.
Adam Jeffery | CNBC
In December 1996, then-Fed Chairman Alan Greenspan warned of ‘irrational exuberance’ in the stock market.
In March 2000, the Nasdaq peaked at 5,048 before losing 76% of its value over the next two years. The run-up was due to many factors, including the birth of internet chat rooms, but nothing with the power we see today on platforms like Reddit.
Imas said Wall Street is going to have to fight that this new form of collaborative investment at the grassroots level is changing the landscape. “Investors have shown that they can organize and have the ability to coordinate for kicks, like a game, and that they can clearly make money at the same time,” he said.
He added that it appears there is nothing illegal about the process “and I do not see why we will not see more of this and why people will not come together as a group and earn money.” The coordination “could apply to anything negotiable,” he said.
Correction: GameStop is a video game retailer. In an earlier version of this story, the business model was wrong.