AUSTIN (KXAN) — The saga of Texas-based video game retailer GameStop has taken the financial world by storm after a social media community banded together against Wall Street Investors.
The GameStop stock has jumped from below $20 earlier in January to $325 as of the weekend. This meteoric rise was sparked by a Reddit community fighting against Wall Street hedge funds that bet on the stock to fall.
This wild market move has turned some small investors into millionaires in the span of several days.
University of Texas at Austin finance professor Travis Johnson joined KXAN to lay out the facts before you decide to invest.
What actually happened here?
Johnson says Wall Street investors were betting against GameStop using short sales. Reddit investors worked together to buy a bunch of shares, pushing the price up and forcing Wall Street investors to ditch the stock. This pushed the price of the stock even higher.
So far, the smalltime investors are winning the tug of war, but it can’t last forever, according to Johnson.
Could this trend continue and potentially change Wall Street as we know it?
The momentum around GameStop could potentially change how Wall Street operates in the future. Johnson believes there will be other stocks that soar with a ground swell of support from the public.
Any advice for first-time investors who are trying to cash in on the trend?
Stick with the basics, Johnson says.
“Index funds have the best track record over history and have tripled over the last decade and are easy to use. If you’re going to do something like this…with GameStop…never risk more than you can afford to lose because some people lose almost all of it,” Johnson said. “Try to find the early version of the next GameStop — instead of being the last person to come to this GameStop.”
You can watch the full interview in the video player above.