Bob Carlson, 11 February 2021
Over the last couple of weeks, the financial headlines have been dominated by market manipulation, GameStop, short squeezes, Reddit frenzies and other uncommon topics. A little perspective makes it easier to understand these events and how they should affect your investment strategy.
The big news was the strong increase in the price of the stock of GameStop, a video game retailer that many investors thought was slowly dying. The price apparently increased because a large number of members in a forum on the Reddit web site said investors should buy the stock.
They said the price would go up at least partly because some large hedge funds had sold the stock short. If the price increased, the hedge funds would have to buy the stock to cover their short sales, and that would make the stock price rise more.
The price of GameStop did indeed rise. After about a week of heavy media attention and a meteoric increase in the stock, the price of GameStop stock tumbled in a couple of days.
The Reddit forum apparently also pushed up the stock price of AMC, a movie theater company, and another forum helped push up the price of silver by recommending it.