Social Media Strikes Again: This Time in the Stock Market

Recently, it has been the talk of the internet. GameStop this. AMC that. Have you invested? Do I buy stock? What does this have to do with me?

Whether you’re a well-versed finance junky or a stock market newbie, odds are you’re still trying to figure out how an alleged social media thread has caused some of the greatest stock market manipulation we’ve seen recently.

So how did this all start? I’ll attempt to bring us up to speed.

Thanks to a Reddit thread called, “WallStreetBets,” a group of people encouraged one another to keep buying GameStop stock – ultimately pushing it higher. Wait – why GameStop? Apparently, there was (and still is) a deep hatred for GameStop’s stock by hedge funds and other professional investors – even more of a reason for these everyday retail investors and normal people to strike against it.

According to the Chicago Tribune, many were already betting on GameStop’s stock to fall by shorting it. Simply put, shorting a stock is how investors can make money off a stock that’s falling. When a short sale happens, investors borrow a share of GameStop and then sell it. If the stock price goes to what they expected, they can then buy the stock at a lower price and keep the difference.

OK, so what? NBC News emphasized why this is so important (and also put it in layman’s terms), “The simplest answer is that GameStop’s stock price has skyrocketed — by somewhere around 8,000 percent over six months. The more complex answer is that its stock has become the central game piece in a financial power struggle between a major hedge fund, Melvin Capital, and a group of amateur stock traders who yell on the internet.”

Now that we are caught up to what is happening, why should we care?

“Facts only account for 10% of the reactions on the stock market;
everything else is psychology.”  André Kostolany  

Social media has immense power, as demonstrated by the above – it can manipulate opinions, predict actions or even wreak havoc on individuals, companies, or ideas. It can do anything. By monitoring what’s going on in the world of social media, it’s possible to predict connections between sentiment and market movements. In this case, we saw that a simple Reddit thread created a chain reaction that led to mass market manipulation.

The reality? Social media is far from disappearing anytime soon – day by day, we realize just how powerful it can be. Whether it’s recording a video on your phone during an altercation, or tweeting about Bernie Sanders’ mittens on Inauguration Day – word spreads fast on social.

Moving forward, we must continue to monitor social media to be able to predict what could happen in real-life scenarios. As people who work in a very client-focused environment, staying on top of social chatter ensures that we can be proactive about situations instead of reactive.

Of course, sometimes we may fall short, but if you pay close attention to what’s trending in the virtual world, it will most likely project outwards to the real world.

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