On the night of Jan. 27, second-year University of Minnesota student Aaron Diveley decided to invest $170 in AMC, Bed Bath & Beyond and other companies.
Inspired by his roommate, who explained the stock market’s intricacies, Diveley, who is majoring in mathematics, created his account on the no-fee stock trading app Robinhood. As of Feb. 7, Diveley has lost around $13 total on Robinhood, although he says that he and his roommates have chosen not to sell their stocks due to their belief that the prices will not be down for long.
Diveley and his roommates are among many others who have recently bought stocks based on advice from Reddit, causing multiple hedge funds who bet against GameStop (GME), AMC, Nokia and other companies to lose money. According to reporting by the Wall Street Journal, Melvin Capital Management, an investment management firm, lost 53% on its investments in January.
“Me and my roommates all have money in [this]. We’re steeling our nerves,” Diveley said.
According to Dr. Fahima Aziz, an economics professor at the University, stock prices at GME have been slowly decreasing over the past few years because the company did not adapt in a timely manner to the rise of online gaming.
However, multiple hedge funds bet that the stock price of GME, among other companies, would go down, which is called shorting – a common practice in Wall Street by some but a small portion of the stocks being traded overall, Aziz said in an email to the Minnesota Daily.
“The Shorting groups are always looking for stocks that they think are going to drop in price. This type of Hedge Fund investment is not [available] to individual traders. It requires big funds of Wall Street to back up their borrowing and returning of stocks,” Aziz said in the email.
When r/wallstreetbets encouraged members to invest in multiple stocks, the price shot up “from $20 to $483 at one point in two weeks,” she said in her email.
In turn, the hedge funds that predicted that those companies’ stock prices would decrease suffered losses.
Other students have also bought or sold stocks because of Reddit, including Jack Flom, a third-year student studying political science and urban studies. Flom, who has been following r/wallstreetbets for multiple years, said they spent over $2,000 on GME last month and ended up making a profit of around $800. Flom said they still own shares of Dogecoin, a cryptocurrency many Redditors have been investing in, including Diveley.
“I think that this whole thing is probably a once-in-a-lifetime occurrence; I don’t think it’s gonna happen again. But I don’t think I regret taking advice from Reddit. I think it was fun, and it’s something that our generation would definitely do,” they said.
According to Aziz, although GME’s stock prices have fluctuated over time, the outcome is still in favor of individual traders.
Diveley said he feels why so many individual investors have bought stock in these companies goes beyond seeking financial gain.
“Everybody’s kind of skeptical about losing $100 or something proportional to how much you put in,” Diveley said. “It’s kind of significantly less threatening than the idea of allowing millionaires and multimillionaires and billionaires to launch our country into a recession so that they can make even more money.”
Correction: The featured photo in a previous version of this story misspelled Aaron Diveley’s name in the caption. The error has been corrected.
