The last week of January finished with an unexpected stock market mania many are calling the viral “GameStop Saga.”
The short squeeze that raised eyebrows caused Redditors and bandwagon investors to walk away with a new fortune, while hedge funds didn’t end up not as lucky. Those who were not as familiar with the stock market stood as bystanders, not knowing how or why to get involved.
A short squeeze occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall to buy it in order to forestall even greater losses, according to Investopedia. The frenzy and need to buy only increases the stock’s price, which is exactly what happened to GameStop.
During the craze, there were many new, inexperienced investors who jumped on, hoping to make money off of the rapidly increasing stock prices. The GameStop incident shed light on how certain groups are less likely to invest their money in the stock market because of the risks and lack of resources and education. These groups include women, younger people and those of lower socioeconomic status.
BYU Marriott’s School of Accountancy Director Bill Tayler recreates and studies these stock market trends, like the recent GameStop mania, in his research. He has discovered several findings on these stock market bubbles and the risks of short selling, which is the borrowing of shares and immediately selling them to make quick cash.
Tayler said short selling can be risky because it is hard to determine how long stock market bubbles will last. “The problem with short selling is you can also lose a ton of money fast, so this is why usually only wealthy investors get involved in short selling.”
BYU accounting professor Jake Thornock said although people should proceed with caution while entering the stock market, learning the basic principles of investing can help break past stock market entrance barriers. This can include researching which companies to invest in, how to open an account, how to budget money to save for investing and more.
“It was much harder a decade ago for someone in the a bottom bracket of socioeconomic status to invest,” Thornock said. “Now, pretty much anyone with a cell phone and a bank account can invest as long as you have one of the apps to do so, such as Robinhood.”
Apps like Robinhood, Acorns and Stash can help beginners with investing and entering the stock market with confidence. There are also several classes at BYU which offer instruction on how to finance and invest.
Starting to invest while young and having a long-term perspective on finances can be beneficial, said BYU family finance professor Jeffrey Hill. Even if it is just a little amount to set aside, one can benefit greatly from the stock market early on. Hill said students just have to be careful.
“I believe that every student at BYU should be investing something every month until they retire. It’s not just the amount that you’re doing it but you’re getting in the habit of doing it,” Hill said.