No one expects another supernova like GameStop to happen again, where a band of smaller-pocketed investors helped boost a struggling company’s stock 1,000% in two weeks. But the tools they employed can be used again and again if those smaller investors stay connected on social media forums and if regulators don’t change the rules to hinder them.
These smaller players, called “retail investors” in the industry to differentiate them from hedge funds and other big firms, are using many of the same tactics as the professionals, after all. And if retail investors continue to hold greater sway, the result will likely be sharper swings for some stocks than they would have had otherwise, if not to GameStop’s spectacular degree.
GameStop’s wild ride is causing some professional investors to gird for more volatility in the market and politicians in Washington to ask who is getting hurt. A House committee is calling several of the GameStop saga’s players to a hearing, titled “Game Stopped? Who wins and losses when short-sellers, social media, and retail investors collide.”
“I don’t think we’re going to see major reforms that prevent it,” said Tony Casey, a professor of law at the University of Chicago, of the rise of social-media-driven trading. “All the parts in this will still be here in a few years, and we will likely see versions of it.”
Exhibit A may have come even sooner than many expected. Just last week, stocks of several pot producers burst higher, with medical marijuana grower Tilray more than doubling in three days, only to more than halve in the next two. Some of the surges was due to actual news, including a Tilray deal to distribute medical cannabis into the United Kingdom. But smaller investors also piled into the stocks.
“Time to get on the cannabis bandwagon if you ain’t,” one user posted on the WallStreetBets forum of Reddit, a hub for smaller investors and perhaps the launchpad for the GameStop saga.
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