A GameStop store in Hollywood, California, occupied with customers waiting in line to enter the video game store on January 27, 2021.
AaronP | Bauer-Griffin | GC images | Getty Images
The GameStop trade has reached fever levels that show little sign of breaking.
Despite the fall in prices during Thursday’s session, after several brokers placed limits on buying and selling, the shares rose 500% in a week.
It may just be the beginning of a new wave for Wall Street.
“People are saying, ‘Damn Wall Street,'” said Alex Imas, a behavioral economist at the University of Chicago’s Booth School of Business.
Imas said we may be seeing a major shift in the power of social media networks when it comes to influencing tradable assets.
“What we saw in this episode with GameStop is that networks like Reddit have the power to move inventory faster and farther and keep it at elevated levels for longer than previously believed, and the coordination on those platforms is allowing that happen.”
Investors have become accustomed to a system where the stock market provides a place where people get independent signals and decide on their own whether it’s time to buy or sell. But, said Imas, “those social networks that can be a platform for the large-scale coordination of an idea can make an asset stray from its fundamental value.”
Traditional Wall Street analysts who cover the struggling brick and mortar video game maker clearly do not believe there is a fundamental case for stocks to rise 1,400% in the first weeks of 2021. With GameStop rising to stratospheric levels, Bank of Analysts of America that cover the shares once again told investors to realize their profits now.
In a note to investors on Wednesday, they said the stock was worth just $ 10.
“The more business changes in store transactions, the more difficult it will be to sell used and high-margin collectibles,” which accounted for 46% of GameStop’s sales in 2019, analysts said.
Of the six analysts covering the shares registered by FactSet, the highest target price is $ 33 per share, that is, 12% less than the current share price of $ 267 per share on Thursday.
There are other examples of when prices skyrocketed, starting from the fundamental value, but not so – where a group of people suddenly decided to coordinate themselves to make a stock rise. Anything with a dot-com suffix grew in the late 1990s, during a technological boom, stock market experts had a hard time explaining.
Alan Greenspan, former president 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 rose by 5,048 before losing 76% of its value in the next two years. The race was due to many factors, including the birth of Internet stock chat rooms, but nothing with the power we see today on platforms like Reddit.
Imas said Wall Street will have to deal with the fact that this new form of grassroots collaborative investment is changing the landscape. “Investors have shown that they can organize and coordinate, as if it were a game, and they can make real money at the same time,” he said.
He added that there seems to be nothing illegal in the process “and I don’t see why we won’t see this anymore and why people won’t come together as a group and make some money”. Coordination “can be applied to anything negotiable,” he said.