GameStop Story: Hedge Fund Vultures Crushed by Retail Investors

GameStop is a brick and mortar video game retailer held its stock price reasonably steady for years, as ecommerce passed it by. It trades on the NYSE as GME.

THE MORAL OF THE STORY ABOUT GAMESTOP: Gamestop, a retailer that merchandises video games at brick and mortar stores faces an uncertain business climate, like so many other businesses with coronavirus lockdowns and restrictions. Big hedge funds with access to information circled like vultures around the company placing a gargantuan short on Gamestop. And those hedge funds get their insider knowledge from a corrupt iron triangle that includes newly installed liberal eggheads in Washington in the Biden Administration that knows when those restrictions are going to get lifted.

Over the past few months, Hedge Funds have been preparing to destroy the company by short selling 85% of the company’s 65 million free trading shares. This is something that Hedge Funds often do. They gang up on small struggling companies, destroying their target, ripping off small investors while bolstering their own bottom line.

It looks a lot like the old story, “the rich get richer and the poor get poorer.”

In this case, a group of small investors in a subreddit realized they could stop the Hedge Funds destroying a company they liked.

GameStop stockprice
GameStop stockprice. Screenshot and arrangement by NewsBlaze.

The Redditors called the bluff of the major institutional investors who were hedging that the stock would lose 140% of its value. They staged an epic comeback for the stock raising it to a market cap of $10 Billion putting it at a level above half of the companies in the S&P 500.

In a terse statement on their bulletin board the activist investors stated “We ****ing OWN you.” The question tonight is what has the acquisition by these Wall Street Insurgents really purchased? Could it have mortgaged the posteriors of Biden administration officials into receivership for potentially corrupt “smash and grabbing” companies during this pandemic period? One thing is for certain, Gamestop will be on the minds of people tomorrow as Wall Street rings the opening bell.

The small investors realized they could buy up a relatively small number of shares and refuse to allow them to be borrowed to sell short. That action increased the price of the stock and some short sellers were forced to cover, driving up the price even higher. That forced other short sellers to cover and the stock price kept rising.

One Hedge Fund used options to short $55 million worth of stock, and because options must be disclosed, the small investors knew the short seller was exposed and they were highly leveraged.

That fund was a multibillion-dollar operation, Melvin Capital Management.

By starting this operation to stop the Hedge Funds destroying the company and ripping off the small investors, the small investors struck a blow for “the little people” and they inflicted pain onto the billion-dollar hedge funds that do it to small investors all the time.

It is clear to anyone who cares to do some research that GameStop is not about to die. Its business model needs some adjustment, but it isn’t on its last legs.

The outlook for the company is starting to look positive, even with increased losses due to government response to COVID-19. The company says it is seeing “unprecedented demand” increasing sales for new Microsoft and Sony gaming consoles.

In early January, Gamestop expanded its board of directors to 13 members, appointing three new directors recommended by RC Ventures, an activist investor that recently increased its own stake in the company by around 30%. The new directors have e-commerce, online marketing, finance, and strategic planning expertise, something the company needs help with.

Holding around 13% of GameStop makes RC Ventures one of the company’s largest shareholders.

This seems to be one of the few occasions that small investors have comprehensively beaten the Hedge Funds into submission, but this story isn’t over yet. If most of the small investors hold their positions, it may shake out most of the short sellers.

On Twitter, there was a lot of chatter and speculation. Here is one interesting thread:

Here are some of the comments about what happened:

for the rich by the rich, screenshot by NewsBlaze.
for the rich by the rich, screenshot by NewsBlaze.
hedge shorts, screenshot by NewsBlaze.
Hedge Shorts, screenshot by NewsBlaze.

Some years ago, there were people pleading with small investors to not allow their stock to be borrowed by short sellers. If they had listened and it was common knowledge that this was a way to prevent short sellers destroying or taking over companies, this GameStop fiasco may not have happened.

It seems that his is a very good lesson for everyone who trades in stocks, that NewsBlaze will look to cover in a later story.

One unintended consequence of the interest in Game Stop was that a small Australian company, GME Resources Limited, trading as “GME” on the Australian Securities Exchange, jumped by 50% in early trading, with 20 times the normal trading volume. By the end of the day, it had cooled down, but was still up 19%.

Editor’s Note: NewsBlaze writer Randy Foreman contributed to this story.

Editor’s Note: Alan Gray has no position in any stock mentioned in this story. Randy Foreman has no position in any stock mentioned in this story, but has placed an order to buy one share of GameStop on the Slash app. NewsBlaze has no position in any stock mentioned in this story.

Update: Randy Foreman has now placed an order for one share of Gamestop, using the “Slash” app. That order may execute on Monday 1st February.

Alan Gray
Alan Gray is the Publisher and Editor-in-Chief of NewsBlaze Daily News and other online newspapers. He prefers to edit, rather than write, but sometimes an issue rears it's head and makes him start hammering away on the keyboard.

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Alan has been on the internet since it first started. He loves to use his expertise in content and digital marketing to help businesses grow, through managed content services. After living in the United States for 15 years, he is now in South Australia. To learn more about how Alan can help you with content marketing and managed content services, contact him by email.

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Alan is also a techie. His father was a British soldier in the 4th Indian Division in WWII, with Sikhs and Gurkhas. He was a sergeant in signals and after that, he was a printer who typeset magazines and books on his linotype machine. Those skills were passed on to Alan and his brothers, who all worked for Telecom Australia, on more advanced signals (communications). After studying electronics, communications, and computing at college, and building and repairing all kinds of electronics, Alan switched to programming and team building and management.He has a fascination with shooting video footage and video editing, so watch out if he points his Canon 7d in your direction.