Business, Campus, Features, News

Students reflect on investments in GameStop, Dogecoin stock trends

GameStop. Some Boston University students invested in GameStop in January after reading about the stock’s potential value on Reddit. COURTESY OF COREY COYLE VIA WIKIMEDIA COMMONS

When the internet went wild for recent stock investments in companies such as GameStop, AMC Entertainment and BlackBerry, Boston University students, of course, were involved in the mix.

They took part in buying shares of these companies to profit off of the sharp rise in their stock price.

The value of GameStop, GME, rose to more than 17 times its previous value between Jan. 12 and Jan. 27, when one share reached the price of $347.51 — the price Jan. 12 had been $19.95 per share.

This rapid increase of GME’s share price, along with AMC and other companies that had not been expected to experience such growth, was sparked by discussions in the Reddit forum wallstreetbets, which has nearly 8.5 million members.

Stock prices rose so sharply that popular stock-trading company Robinhood, along with others, placed restrictions on trading, which provoked widespread controversy across the internet.

Andre Lo, a sophomore in the College of General Studies, said he invested five percent of his portfolio in GME after following along with the subreddit r/stocks in January before the trend made its way into the mainstream media.

“I actually heard about the trend, I’d say, somewhere around mid-January,” Lo said. “So that was, I think, a week before the whole thing blew up.”

He said although it is still unclear why Robinhood blocked the trades, its public relations team has not been handling the situation well.

“I don’t see a future for Robinhood after this,” Lo said, “because they’ve basically lost the trust of everyone.”

Lo said he invested in GME Jan. 26 and exited the position Feb. 1 with a small loss, which he doesn’t regret. He said if he had to do it again, he would consider investing earlier.

“When you realize that information about a particular stock goes into mainstream media, the news has already happened,” Lo said. “You’re basically looking at yesterday’s news. So if you’re using that information to invest, I would say that’s a flawed strategy.”

Lo said he expects these events to be considered historically significant in the years to come.

“In financial history, in maybe 10 or 20 years, this would be a very good case study, especially Robinhood’s case,” Lo said. “I think it’ll definitely be in textbooks.”

Reed Romanko, a junior in the College of Arts and Sciences, said people saw an opportunity to profit from the “astronomical” rates of short-selling on stocks such as GME and AMC.

“I think a lot of people were like, ‘OK, this is a symptom of a much greater problem with our financial system,’” Romanko said. “We’re going to see if we can, well, make me some money.”

Fernando Zapatero, a professor of finance at the Questrom School of Business, said regardless of its intention, Robinhood placed hedge funds over the everyday investor. While blocking trades could be justified if it was done to protect investors, this was not the case here, he said.

“They had to stop because they didn’t have money to do what they were supposed to do,” Zapatero said. “I don’t think they did that to protect or to favor the hedge funds or the small investors, but you can argue that at the end, this is what they did.”

Zapatero said Robinhood ideally should have been prepared to meet its financial obligations so users could keep using the service.

“You cannot say, ‘Well the busses stopped because they didn’t have gas.’ That’s not supposed to happen,” Zapatero said. “You’re not supposed to run out of gas in the middle of the road, right?”

Geoffrey Carliner, CAS lecturer of economics, said Robinhood’s decision to freeze these stocks has been criticized by politicians from both sides of the spectrum.

“So when [Alexandria Ocasio-Cortez] and Ted Cruz are on the same side of some political issue you have to either laugh or cry,” Carliner said. “You have to wonder what’s going on.”

Carliner noted the power the internet has given regular people, who can now become investors in large corporations.

“It’s not that there wasn’t stock market manipulation before, but not like this,” Carliner said. “It’s got a little ironic twist that it’s the small people doing it instead of the big hedge funds.”

Questrom senior Sunny Zhao said he has been a member of the wallstreetbets community for over two years and had been following a number of online research threads for a couple of weeks before investing in GME.

“It looked like, long term, GameStop had a strategy that would bring it back to its former glory, back when disc gaming was really big,” Zhao said.

He cited this as a reason he saw potential in the stock and invested before the media frenzy started by Reddit users.

“I was looking at it, and it seemed like in the long term, games would be a good choice to invest in,” Zhao said, “I did not expect the kind of hype that ended up occurring last week.”

As a Robinhood user, Zhao said its restrictions on trading came as a shock to him.

“I was initially very, very angry,” Zhao said. “At best, it was disingenuous marketing. At worst, market manipulation.”

He said he thinks Robinhood’s blocking of the trades is ultimately justified because the corporation faced “liquidity issues.”

“I think the brokerages themselves did what they had to do, I guess, to stay afloat,” Zhao said. “I don’t think it’s necessarily very fair or unfair, I think it’s just a result of their business model.”

Zhao said he has seen an increased interest in the stock market from other students recently, even those who are not business majors.

“I think more and more people, especially our age, are going to be more interested to see what the stock market does,” Zhao said, “especially since we have easy access to information that we could use for trading.”

Anthony Dongfack, a 2020 CAS alum, invested $24 in Dogecoin — a cryptocurrency based on the “Doge” meme — Jan. 2. Dongfack made this decision after consulting a Facebook group dedicated to investing for beginners.

“Around the time that the Robinhood craziness and GameStop and AMC and all that was going crazy,” Dongfack said, “Dogecoin was also increasing at a crazy rate.”

Dongfack said his investment had risen to a value of $160 before he decided to sell with an approximately 500 percent return. He said he used Robinhood to trade, and cited its trade restrictions were enforcing class distinctions.

“It was a big eye opener for a lot of us, especially retail investors and really any average investor that’s not some wealthy one-percent person or some hedge fund member,” Dongfack said. “It made us realize that someone like me is not who they’re looking to appease or really help out.”

Dongfack said Robinhood’s decision to block trades is incompatible with its business philosophy, which aims to make investing accessible with fractional shares.

“If the wealthy people are losing, they’re going to have to get the money from somewhere,” he said. “They restricted our trade, they restricted our buys, and the people that are on the lower end of socioeconomic status, as opposed to the higher end, take the fall for that.”

Dongfack noted the irony in Robinhood’s name, given these events.

“If you think about the fairy tale, if Robin Hood didn’t have rich people to rob, who would Robin Hood rob?” Dongfack said. “And we found out.”

CORRECTION: A previous version of this article misstated that Sunny Zhao said Robinhood’s blocking of trades was ultimately justified because they risked losing money and facing bankruptcy. Zhao said the decision was justified because Robinhood faced liquidity issues. The article has been updated to reflect this.

 

Leave a Comment

Your email address will not be published. Required fields are marked *

*