Local investors cash in on GameStop stock frenzy
Strategy, fueled by Reddit, targets hedge funds
Saif Maknojia, the owner of a Houston rooftop company, bought 100 shares of the videogame retailer GameStop on Tuesday. He sold it Friday and tripled his money.
His investment strategy, however, had nothing to do with profit, loss or sales. It was all about putting it to the man.
“For a while now, big hedge funds and banks have been shorting companies that are going under,” said Maknojia, 24, owner of Origin Roofing & Metal. “Profiting off of people’s losses, especially during the pandemic, it is upsetting when you see these companies going out of business. You want to get back at them.”
Maknojia is part of the mob of online users that rallied around GameStop after learning that hedge funds were shorting the video game retailer, or planning to profit by driving down the company’s share prices.
The call to take on the hedge funds came through the social news aggregation and discussion website Reddit and the response was so overwhelming that it sent GameStock’s prices soaring and forced at least one hedge fund to close out its short position.
GameStop, headquartered in Grapevine, has become a phenomenon that is challenging the way Wall Street works and the institutional investors that dominate stock markets — and making GameStock investors a pile of money.
A year ago, GameStop was trading at about $4 a share. On Friday, it closed at $325. The stock has soared as high as $483 a share.
GameStop has struggled in recent years as consumers increasingly downloaded videogames from the internet instead of buying them from the store. The company reported a loss of $470.9 million for the fiscal year ending February 2020 after losing $673 million in the previous year. GameStop’s annual revenues plunged 22 percent to $6.5 billion in 2020 from $8.3 billion in 2019.
GameStop did not respond to requests for comment.
Those fundamentals have mattered little in the recent buying frenzy. The campaign began in the Reddit forum “WallStreetBets,” which has 6 million users, and enabled by the trading app Robinhood.
The overwhelming volume led Robinhood on Thursday to restrict trading on its platform, which sent GameStop’s stock falling. Robinhood lifted the restrictions Friday and GameStop stock gained 65 percent.
Casey Crow, 40, of Houston, owns proprietary trading firm Crowhop Capital. When a friend raised the idea of investing in GameStop, Crow said he saw an opportunity — and cashed in.
The two friends bought the stock last Friday and sold it the same day at an 89 percent gain. They bought more GameStop shares Monday and Tuesday, which they are holding.
“It presented a unique scenario where the seller can set the price,” said Crow. “I am not going to miss out on that.”
Eduardo Gracian of Port Arthur spent about $2,000 to buy 6,780 shares in GameStop in early 2020. On Wednesday, he sold all his stock for $64,153.37, an experience he described as a “fairy tale.”
Jonathan Waite, a senior equity analyst with Frost Investment Advisors, a unit of Frost Bank of San Antonio, said the opportunity that Crow and other investors are hoping to grab is driven by an “us
versus them” rationale that oversimplifies the stock market. Not everyone who lost on GameStock trades was a hedge fund or big bank; smaller investors were likely on the short side, too.
“WallStreetBets has controlled that narrative. It coincides with politics. It grabs at what’s going on in our culture today and people have run with it,” said Waite. “But it is kind of a false dichotomy.”
Waite warned that investing in a single stock based on a Reddit thread is risky. He said investors need to do research and need to understand what they’re getting into. They also need to understand that stocks, too, are subject to the laws of gravity.
“On a single stock where you see bubbles like this, it rarely ends well,” he said. “No stock goes to the moon. No stock goes to infinity.”