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Then they begin a promotional campaign to get other investors buying in as well. In such a scenario, an investor or investors buy heavily into a low-value stock, something that they can get cheaply and in volume. The GameStop stock price run-up essentially resulted from a pump-and-dump scheme. GameStop Stock Price Spike: A Pump and Dump Phenomenon?
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In short, those boosting GME did so not because of their belief in the company but in their ability to exploit market momentum in their favor.Īs you unpack the newfangled social media-driven market swings, exercise caution and seek out trusted experts: An experienced financial advisor in your area can provide hands-on guidance. Ultimately, the metoric rise of GameStop’s stock and its subsequent humbling free-fall – which has apparently forced the closure of at least one hedge fund – can be an object lesson in understanding how the stock market actually works and how it’s manipulated.
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This may seem like a new phenomenon, but it is how the market has operated for decades. The combination of irrational exuberance and a concerted buy effort promoted on the WallStreetBets Reddit channel boosted the stock to astronomical heights untethered to more mundane fundamentals like price-t0-earnings ratio.īut as day trading, technical analysis and retail investment apps like Robinhood explode onto the market, investors are increasingly making money off of the rules of how the stock market works rather than the actual strength of the underlying businesses. The disconnect between a stock’s share price and the company’s performance were writ large during the GameStop (GME) stock price surge at the end of January 2021.