{"id":4325,"date":"2021-05-13T13:15:42","date_gmt":"2021-05-13T12:15:42","guid":{"rendered":"https:\/\/www.simtrade.fr\/blog_simtrade\/?p=4325"},"modified":"2024-08-19T21:30:20","modified_gmt":"2024-08-19T21:30:20","slug":"gamestop-group-nostalgic-nerds-overturned-short-selling-strategy","status":"publish","type":"post","link":"https:\/\/www.simtrade.fr\/blog_simtrade\/gamestop-group-nostalgic-nerds-overturned-short-selling-strategy\/","title":{"rendered":"Gamestop: how a group of nostalgic nerds overturned a short-selling strategy"},"content":{"rendered":"

Gamestop: how a group of nostalgic nerds overturned a short-selling strategy<\/h1>\n

\"img_SimTrade_Photo1_Raphael_Roero_de_Cortanze\"<\/a><\/p>\n

In this article, Rapha\u00ebl ROERO DE CORTANZE<\/a> (ESSEC Business School, Grande Ecole<\/i> Program – Master in Management, 2019-2022) talks about the Gamestop case which has shaken up Wall Street last january.<\/p>\n

Gamestop: an unprofitable company with slender turnaround prospects<\/h2>\n

Gamestop is a US company specializing in the distribution of video games and electronic equipment (similar to Micromania in France). After golden years in the 1990\u2019 and 00\u2019, Gamestop has sunk since 2010 into a spiral of debt and successive sales of its stores around the world. The company\u2019s response has been to cut costs and shut down underperforming stores, rather than trying to adapt to new trends of consumer behavior. Indeed, physical stores have lost momentum over the years, this decrease being powered by the rise of e-commerce and recently COVID-19 and lockdown restrictions. Hence, at the end if 2020, Gamestop\u2019s future appear to be bleaker than ever.<\/p>\n

Last January, Gamestop became the target of a short-selling strategy (see below) by several hedge funds. In a short-selling strategy, hedge funds bet on the decrease of a stock to pocket profits. But, retail investors came into action to \u201csave\u201d Gamestop from the claws of these hedge funds.<\/p>\n

Indeed, in the United States, the stock market has opened up in recent months to small investors. Since the beginning of the Covid-19 crisis, many stocks have fallen, allowing an entry into the world of the stock market with little investment. Thus, students, employees or even retirees have been tempted. After having learned that some hedge funds were betting on a decrease of Gamestop\u2019s stock, a retail investor began buying Gamestop stock on the Robinhood application, then calling on Reddit for other retail investors nostalgic of Gamestop to come to the rescue and buy more Gamestop\u2019s stock to increase the stock price. Their strategy paid off: the stock price surged up to 1400% and the hedge funds had to incur losses.<\/p>\n

What is short-selling strategy?<\/h2>\n

A short-selling strategy revolves around selling something you do not own. If you do not own something you want to sell, you can borrow it, sell it and then give it back at the end of the borrowing time. A short-selling strategy can be simplified into 3 steps:<\/p>\n