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More bubbles, less shorting. What the GameStop craziness could mean for the future of investing

Tiffany Hagler-Geard | Bloomberg | Getty Images

The stock market is known for being unpredictable and volatile, and any sense of normalcy was blown up during the recent GameStop rally.

Most of us know the story by now: After discovering that several hedge funds had bet on the video game retailer losing value, people banded together on the Reddit forum WallStreetBets to drive up its share price by 1,500%. Over the course of January, GameStop’s stock price ballooned to a high of $483 from a low of $17.

The bubble already appears to be popping, with GameStop shares down to around $55 as of Friday.

Still, the event is unlikely to be soon forgotten, experts say.

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The Reddit forum of retail investors vowing to take on Wall Street still has more than 8.5 million subscribers (or as they call themselves, “degenerates”). And Netflix is already in talks to make a film dramatizing the battle royale between giant hedge funds and a pack of individual day traders.

What’s more, experts say the event tells us about what’s bringing people into the market these days — and what that could mean for investing in the future.

More bubbles

In many ways, the GameStop rally resembles bubbles of the past, but it has some unique characteristics, too, experts say.

“What is new is the scale and speed of the event,” said Veljko Fotak, associate professor of finance at the University at Buffalo.

The ubiquity of smartphones on which people can download investing apps, the availability of cheap or free trading and “a pandemic with a lot of restless energy,” are all factors that contributed to the video game retailer’s rally, said Dan Egan, vice president of finance and investing at Betterment.