Features

The state of the stock market: an explanation from the Stock Market Club

by Elsa Ying (’23) | March 1, 2021

Daniela Tran (’21)

On Wednesday, January 17, the New York Stock Market was thrown into utter disarray. The impact of the unexpected events were felt by everyone, from major Wall Street hedge funds to our own Stock Market Club at Saint Francis.

The Stock Market Club was founded by Ms. Sherrie Tasnady. After current co-presidents Patrick Galambos (’21) and Patryk Becla (’21) joined in their freshman year, they were immediately taken with the club and its activities. “We fell in love with the club and its mission,” Galambos explains. The two became co-presidents the following year and have been running it ever since. The club mainly consists of two components – monthly presentations on stock market basics and a virtual stock market game on Marketwatch.

The presentations typically take from fifteen to twenty minutes and detail the basics of investing, financing, and other aspects of the real-world stock market. Over the school year, they progress in difficulty and eventually members discover how a company stock works and how stock is actually traded in New York. The Marketwatch simulation is a yearly competition held by the club in which members trade with borrowed money. Each player starts out with five thousand dollars – all virtual, of course – and they are free to trade or purchase under the same confines as the New York Stock Market, including actual Wall Street hours and what stocks are publicly available. At the end of the year, the top three players are rewarded with gift cards of their choice.

So what happened with GameStop? As explained by Patrick Galambos and Patryk Becla, the sudden rise in GameStop stock started near the beginning of 2021 with a few Reddit users who had bought GameStop stock. Becla summarizes, “There are two major aspects of what happened. First of all, there was a short squeeze, and then there was general hype.” The general hype consisted of the increased popularity of GameStop stock, first in the subReddit Wall Street Bets, and later on other social media platforms, such as Twitter. In fact, some celebrities even posted about GameStop, including billionaire Elon Musk who is notorious for increasing volatility of markets.

On the other hand, the short squeeze started with an actual company called Melvin Capital. In the middle of 2020, Melvin Capital shorted the stock with the belief that GameStop was worth less due to changing market conditions. Becla elaborated, “To understand a short squeeze, we need to look at what short selling is.” He goes on to explain that short selling is when a company borrows stock from another investor and sells it in hopes of purchasing it back at a lower price and then returning the stock to its original owner. Thus, a short squeeze occurs when many investors short sell, and the stock actually rises in value, forcing borrowers to purchase at the higher price. With more people purchasing, the stock continues to go up. Becla describes, “It’s essentially a positive feedback loop.” GameStop had been losing money in the past few years and each share had only been worth around ten dollars. After compounded rises, the stock reached a high point of $250.

Interestingly enough, Galambos and Becla both advised against investing in GameStop. While a few members of the Stock Market Club had purchased in hopes of the stock rising even higher, most experienced professionals in the field agreed that the stock would drop soon. In fact, GameStop is currently losing revenue and experiencing huge losses. While some members may have invested in GameStop within the Marketwatch competition, Galambos noted, “The contest is more long term, and this is a very short term thing that some people might’ve been able to profit off of.” However, both co-presidents agree that the GameStop situation has led to more engagement with the Marketwatch competition and increased riskiness in strategies.

Overall, Galambos and Becla suggest joining the club for anyone even slightly interested in the stock market or the GameStop situation. “There’s absolutely no responsibility if you join other than to occasionally log on to Zoom, and you learn a lot for such a short time,” Becla adds. To join, students can email either of the co-presidents or the moderator, Ms. Tasnady. With members ready to share valuable insight on finance and tips for real-life investing, the Stock Market Club is a great resource for any student.

Categories: Features

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