Story: Gamestop: 'Failing' firm soars in value as amateurs buy stock

My question is about the impact of such a "stick it to the man" approach that amateur investors on Reddit used. I understand that they took advantage of detecting firms shorting GameStop stock and drove the price way up in order to cause significant losses for Wall Street.

But I can't help but think that the investors of some of the now bankrupt firms will just go on to find other highly paid jobs, but what about the layman? Hasn't a large number of normal people's 401k, college funds and other assorted savings, just gone down the toilet?

Many people on Reddit and other media are hailing the event as a great victory for the common man, which could very well be true. But I'm hoping someone might be able to shed some light on what the ramifications are for those whose money Wall Street was managing.

  • 3
    pension funds can invest in hedge funds, but don't for the most part, for the reasons discussed here marketwatch.com/story/…
    – llama
    Jan 28, 2021 at 20:57
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    Which firms or funds are bankrupt?
    – Polygnome
    Jan 29, 2021 at 10:58
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    @Polygnome None so far, but the question can be answered hypothetically. Jan 29, 2021 at 21:14
  • Regardless of who benefited in the short term from the trades the result is undermining confidence in the stock market, and particularly in shorting. This has a ripple effect that is harmful to the entire market which is ultimately harmful to the economy as a whole since it's effectively acting against the invisible hand of the economy. If this stopped at Gamestop it wouldn't be too bad, but reddit investors are already starting to pump up other stocks. if something isn't done to curtail it the long term harm to investor confidence and the economy will affect everyone.
    – dsollen
    Feb 1, 2021 at 18:27

4 Answers 4


What brokerage firms have failed or are about to fail because of GameStop? It's the hedge funds who got whacked not the little guy.

But I can't help but think that the investors of some of the now bankrupt firms will just go on to find other highly paid jobs, but what about the layman?

Investors don't have to find other highly paid jobs if a firm goes under. The employees must do so.

Hasn't a large number of normal people's 401k, college funds and other assorted savings, just gone down the toilet?

Reputable money managers of 401k plans etc. do not and did not short large amounts of GameStop (140% of the float) resulting and vast loss of normal people's life savings. It's the speculative hedge funds and speculative traders who got whacked. Affluent people invest in hedge funds because of the higher potential for profit which is a double edged sword with higher risk. The winner in the GME contest was the average Joe on Reddit.

  • Comments are not for extended discussion; this conversation has been moved to chat. Jan 29, 2021 at 7:38
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    "It's the hedge funds who got whacked not the little guy." Unfortunately, some of those hedge funds will hold money from pension plans, which ultimately pay "the little guy". If the pension plan goes under, the little guy loses. If the pension plan is for public servants, then either they lose, or the taxpayers lose (as more money has to be injected into the plan from the general fund to keep it solvent). Sure, it's mostly the uber-wealthy (and eventually, the last folks to join this particular train) that suffer, but pensions aren't dead yet, and they'll be hurting too. Jan 29, 2021 at 19:22
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    In the grand scheme of things, the wealthy are the majority participants in hedge funds and pension plans do not invest a large portion of their managed money in them. The lion's share of the little guy's retirement money is in far more conservative investments than hedge funds. Jan 29, 2021 at 20:21
  • It seems to me that 'Average Joes' are just as capable of having invested in hedge funds as the rich elite. The standard advice is that any young individual will likely want to invest in higher risk stocks while young, not just those who are rich. Sure 401Ks may not be affected, but anyone investing, not just the rich, would still be affected.
    – dsollen
    Feb 1, 2021 at 18:18
  • Yes, the 'Average Joes' are just as capable of having invested in hedge funds as the rich elite. But the amount of money that they have in hedge funds pales in comparison to what wealthy people have in them so the premise that the GME short squeeze affected the little guy a lot is faulty. Feb 1, 2021 at 19:12

Short-sales are a financial gamble which has (as we see right now) a very high risk. Most financial products which are meant as long-term saving products for consumers specifically exclude such gambles and stick to more conventional financial instruments instead. In fact in many places in the world it would be illegal to advertise a product as a capital investment or even a retirement fund for consumers when it includes financial instruments with too high of a risk level.

One of the main losers of the current GameStop short squeeze is the company Melvin Capital. That's not a company which works with "common" people. Their website is just a business card (and it looked the same a couple month ago). They look like the kind of company who won't take you seriously unless you bring at least a couple hundred million dollar to the table.

So no, the direct losers of this short squeeze are not middle-class people with retirement accounts. They are upper-class people with millions or even billions of net-worth.

But nevertheless, if this causes a couple of large finance companies to go bankrupt, then that could cause waves which might still affect private people. It's very well possible that some of the "losers" are publicly traded companies themselves, which might in turn be partially owned by other publicly traded companies, which might then appear in the portfolio of index funds and managed funds owned by small investors. So some indirect damage to small investors isn't completely out of the question.

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    I don't know that final number but Melvin Capital capital lost 30% of its value in the first 3 weeks of January, requiring and infusion of nearly $3 billion from two other hedge funds to shore it up. What stuns me is that they did not have the good sense to hedge the tail risk back in the $20 area for GME. And if one objected to paying for 150 IV calls back then, low/no cost collars would have prevented this disaster. Binary bets like this (just short the underlying in size) are a recipe for disaster and they won that lottery. Jan 28, 2021 at 15:26
  • Can't find the article now, but I did read one piece that identified several unrelated companies which had very down days, linking them to the GameStop squeeze. The argument was as hedge funds closed their short positions, they had to close other long positions to cover their losses. It's a big enough move that this selling pressure has depressed the price. I didn't check any of it, but from that it seems entirely feasible there have been significant "waves".
    – Phil Frost
    Jan 28, 2021 at 15:26
  • Ah, here it is: barrons.com/articles/…
    – Phil Frost
    Jan 28, 2021 at 15:27
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    The Barrons article may very well be correct but its presentation doesn't prove that the unrelated companies which had very down days was categorically caused by the Gamestop situation. It's more of an if then maybe connection. Jan 28, 2021 at 16:30

what the ramifications are for those whose money Wall Street was managing?

Nothing drastic will happen to people who are reasonable: people who are not going to retire for another 10 years and decided to invest their retirement money into "dynamic" (read: risky) financial instruments have lost some of their money. They will earn that money back in a few years, because the whole point of risky investments is that they bring more profit on average than more secure investments.

People who are close to retirement should not invest in speculative trading unless they can accept the losses.


It's not likely that normal people's 401k, college funds and other assorted savings are invested in hedge funds. Hedge funds typically attract large institutional investors like pension plans, university endowments, and family foundations. You may also get some individual investors, but by law, only "qualified investors" can invest in hedge funds. That law sets an income threshold (which is seriously out of date) for individual investors, so basically you have to be "rich."

So who got hurt? Probably not a lot of "normal" people. Not directly, anyway. Hedge funds are considered high risk, so losses are not unexpected. This may be a disaster for the fund and its managers, but the investors will probably just chalk it up as a loss and hope to offset it with other investments.

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    I think there's a slight contradiction in saying "normal people's savings" are not invested, but "pension plans" are - those pension funds are investing a form of savings on behalf of "normal people". The later point that those funds will be affected only in a small way is the more important one.
    – IMSoP
    Jan 29, 2021 at 19:38
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    What is the income threshold? Jan 29, 2021 at 21:15
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    The threshold is annual income of at least $200,000 for the last two years (or $300,000 combined for married couples) or a net worth of at least $1 million (excluding the value of a primary residence).
    – Mohair
    Jan 29, 2021 at 21:31
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    I imagine a lot of "normal people" that bought GameStop on January 27th for $147, based on Reddit's touts, and holds onto it until it drops drastically (in a month? a year), and then is forced to sell, will lose a lot of money. There is no way the current valuation is close to reality. Jan 29, 2021 at 21:39
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    @MarkStewart if you are buying GameStop you are hopefully one of the people who is treating it as a donation to "Make Wall Street Mad Inc." and not someone who hopes to actually earn money on it. (Most people would question how throwing money at Wall Street makes them mad, but it happened nonetheless!) Jan 30, 2021 at 3:16

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