Unexpected rise in GameStop stock: experts call it ‘short-term abnormality’

Consumer Reports

TYLER, Texas (KETK) – GameStop stock got a lot of attention this week, causing drama, confusion and anxiety for some who watch the stock market.

There is a battle between big-money investors, known as hedge funds, and small-pocket investors. Additionally, this situation has peaked the curiosity of many people.

The best way to explain this is big Wall Street firms bet that GameStop stock price would fall, knowing their chance of making money rises when the price drops. This week, many individual investors, some known as “day traders,” chose to buy GameStop shares.

They were fueled by comments on the social media platform “Reddit.” Those small time investors wanted to hurt the large hedge funds, while simultaneously making a little money themselves, all by driving up the price.

“Through a public open form of communication they found a whole in the algorithm of the hedge funds and are driving up the price that the hedge funds are gonna be required to pay to buy the shares that the hedge funds are gonna need to cover the short positions.”

Dr. Herold Doty, Professor of Management, Soules College of Business

Although the unexpected rise in its share price disrupted the market, experts urge “typical” investors to ignore the “nonsense” around GameStop, emphasizing that this is merely a short term abnormality.

“They’re gambling right now, and it’s no different than throwing the dice in Vegas. There are gonna be some people who win, generally, none of us can time the market perfectly. If someone can time the market perfectly, they would be very rich,” said Doty.

But what does this mean for the “mom and pop investor?” Financial experts tell KETK there’s nothing to worry about.

“Volatility in the markets is something to be expected from time to time. The reasons are different.  I would take a longer-term approach to the market, see this as maybe just one variety of pullback. We’re not seeing significant declines in the broader indexes yet, we have been down some, but moderately. Hold your positions in your diversified portfolio. Do not exit the market over this activity at all.”

Jay Oliver, Financial Advisor, Rose Point Capital Advisors

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