The recent GameStop stock frenzy that caused shares of the troubled company to rise by more than 1700% in the course of a few days is widely attributed to the actions of young traders protesting against the large financial institutions. However, data gathered by Tel Aviv-based TipRanks, which analyzes the performance of investment analysts and experts, found that middle-aged investors actually played a greater role than Millennials in the saga.
Last month shares of GameStop, a troubled video game retailer teetering on bankruptcy, skyrocketed following a coordinated effort by members of the Reddit community “r/wallstreetbets,” whose millions of members discuss aggressive trading strategies. While some members of the communities became overnight millionaires as a result of the campaign, many public figures applauded the episode as a grassroots effort to punish the large hedge funds that were short-selling the stock in order to profit from its price drops.
While some profited from the saga, many posted heavy losses, including hundreds of novice traders who frittered away large parts of their savings. After reaching as high as $350 on January 27, GameStop’s stock opened trading Thursday at $51.20 per share. That’s still more than twice as much as the stock traded at on January 12, the day before its first big gain.
The rapid rise and fall of GameStop and other troubled companies, like the AMC Cinema chain whose stocks rose 900%, was coordinated on the Reddit site by its users, many of whom are inexperienced traders under the age of 35. However, reports have cast doubt on the myth that this was a victory of small investors over large Wall Street firms. Reports indicate that the four large asset managers that together own 39% of GameStop’s shares have made more than a billion dollars since the beginning of the year. One hedge fund, Senvest Management, made more than $700m. from the buying frenzy, according to the Wall Street Journal.
TipRanks, which has data on more than 678,000 investors, found that gen-X investors – aged 35-55 – actually poured into the stocks in greater numbers than under-35s.
TipRanks found that the number of GameStop stock holders aged 35-55 grew by 215% in January, and currently constitutes 45% of all investors in the company. Meanwhile, the number of under-35s holding the stock rose by 142%, and currently comprises 40% of GameStop stockholders.
Similarly, 52% of AMC stockholders are 35-55, while only 35% are younger, the report said, although both poured into the stock at the same rate in January.
“This research explains, to some extent, the intensity of the extraordinary gains driven by money coming in not just by ‘small’ investors identified with platforms like Robinhood but largely by Generation X investors,” said TipRanks CEO Uri Greenbaum.
“Although it was an exciting moment that started as a social movement, investors learned from this that you can’t win at a game like this,” Greenbaum said. “Pumping a losing business is not a sustainable strategy. In this case, anyone who jumped on the wagon late – even by a few hours – lost.”
“It is exciting to see how people can find stocks of companies with big visions and low revenues, and make them valuable by buying up their stocks. But there are fears that the retail market will eventually cause the bubble to burst. We created TipRanks to help prevent people from making poor decisions online. Studies have shown that 30% of all trades by retail investors come from online advice, and we want to make sure they don’t take bad advice,” Greenbaum said.
“The market for retail investors was a big winner during the pandemic. We now see that 25% of the market’s volume comes from individuals, whereas their impact was almost meaningless just a year ago.
Greenbaum called the involvement of experienced investors “surprising,” as they should have already learned from the experiences of other stock bubbles in their lifetimes. Investors over 55 generally stayed away from the so-called “meme stocks,” embracing financial conservatism and sticking with their retirement plans instead of jumping on the fad, Greenbaum explained.