CINCINNATI — Recent stock market developments involving online communities of amateur investors working to thwart Wall Street hedge funds could spell a new future for the market.
"Nowadays, all the rules are out the window. There's so much momentum,” said Mark Krumbein, a local amateur investor.
He bought into Gamestop, stock that has been driven up about 1,700% in a month, and made nearly $5,000 overnight.
"This is like the Wild West of trading, or maybe like a gold rush. People are pouring into California for example, and everyone is trying to get to the gold," said Krumbein, who is also a criminal defense attorney.
But, he knows the unprecedented quick gains carry risk.
“Don't put all your money on anything,” he said. “It's too dangerous under normal times -- it might be more dangerous than ever now."
What’s happening with the stock market?
Short-selling stock, or short betting, is at the center of the most recent stock market drama. To put it simply, short bets flip the “buy low, sell high” principle of trading; instead of investing in a stock and hoping its value increases, short bets involve borrowing a stock to sell it immediately and buy it back later at a lower price.
This kind of investing has a set upside and a theoretically unlimited downside: if the stock becomes more valuable, short investors have to pay more than they spent to buy the stock back.
Recently, some Wall Street hedge funds bet that Gamestop stock would decline, but groups in online forums like Reddit caught on and decided to buy up Gamestop shares to drive up the stock’s price dramatically. They used trading apps like Robinhood, which allow users to buy and sell shares online.
Now, hedge funds could get stuck with huge losses when they buy back shares.
"All of a sudden, they have huge influence that they never had before,” Krumbein said.
‘They're all committed to not sell out’
Dylan Deters didn’t just buy into the hype of an internet trend -- he bought into the market.
"It's been a fun ride to at least feel like you're a part of the Wall Street system,” the 24-year-old said.
He bought 50 shares of AMC, the movie theater chain also targeted by internet investors that saw its stock value skyrocket.
"I have it at $15 a share. It's dropped completely today,” he said.
After Robinhood and other trading apps temporarily stopped users from buying more shares of Gamestop, AMC and other stocks due to "recent volatility," Deters said he and thousands of others are strapped in.
"The community I've been following is in a rage. But they're all committed to not sell out and sell it,” Deters said. "When the market gets pushed down, a lot of people sell quickly. It drops, then people buy in at a low price when it dips.”
After Robinhood halted purchases of certain shares on Thursday, prompting a class action lawsuit, the company said it would again allow “limited buys” of those securities starting Friday.
“Now that the little guy has an edge into it, it’s starting to make a lot of problems," Deters said.
Sen. Sherrod Brown, an Ohio Democrat and the incoming chair of the Senate Banking and Housing Committee, has now announced a hearing on the current state of the stock market.
"People on Wall Street only care about the rules when they're the ones getting hurt," Brown said in a statement Thursday. "American workers have known for years the Wall Street system is broken -- they've been paying the price. It's time for the SEC and Congress to make the economy work for everyone, not just Wall Street."
Krumbein’s advice for getting into stock trading: if you're not tall enough to ride, don't, and if you can't afford to lose what you put in, stop.
"If 100,000 people jump on in 10 minutes, start buying shares, partial shares, things like that, it goes up," he said. "The big thing is that what goes up will also come down. That's where the danger part comes in."
But some say this type of train, one where everyday people can wield influence through online stock trading, isn't leaving the station anytime soon.
“It could be the future," he said. "I'm thinking the big boys, like the hedge fund people, will try to put the brakes on it, try to get some legislation going that makes people submit their finances to make sure they have enough money to buy and trade stocks."
