Investment Club’s take on the Reddit Rebellion

Isabel Engel, Executive Editor

Summary of Investment Club’s current positions (Abby Malmud)

Over the past weeks, financial news has been dominated by the “Reddit Rebellion,” a massive increase in stock prices for struggling companies like Gamestop and AMC. Fueled by amateur investors on Reddit forum WallStreetBets, the market upset cost millions of dollars for prominent hedge funds, most notably Melvin Capital which lost 53% of its original value. 

Essentially, Melvin Capital and other hedge funds employed a tactic called “shorting a stock” by borrowing shares at a certain price, selling them, and promising to pay the lender back later in hopes the stock price would fall. Unfortunately for those companies, Reddit forums utilized the media to rally the nation to buy stock in it continuously, resulting in hedge funds being required to buy back the stock at a higher price than they paid for and costing them millions of dollars. 

Potomac’s Investment club expressed their opinions about Robinhood’s interference and future implications of the Reddit rebellion.

“It’s a free market and investors can do what they want,” said senior Abby Malmud, a leader of Potomac’s investment club. She also spoke to how social media can manipulate the market, which allowed everyday investors to flip the power dynamic between hedge funds and amateurs.“It was cool that people could get together and show what they could do against Wall Street because normally Wall Street dominates the financial field,” she continued.

The investment club’s board and faculty leader Giorgio Secondi place a strong emphasis on stability when choosing stocks, and, therefore, didn’t feel comfortable engaging in the Gamestop frenzy. 

Also, the investment club’s trading process is not efficient enough to buy and sell as quickly as Gamestop traders needed to in order to stay profitable. 

“Past leaders have stressed that the first thing to do is to find a company you love and that you use every day and then look at the numbers,” Abby said.  

That message has been reflected in stock picks like Walt Disney which has resulted in a 38% gain.

 Though the club hasn’t made any changes to its portfolio in response to the volatile recent quarters, they have made adjustments to their lesson plan to help their more inexperienced club members understand what happened during the “Reddit Rebellion.” 

 “While the GameStop situation didn’t directly affect our portfolio, it’s really interesting. It’s definitely something we’re thinking about and talking about during our meetings,” said club leader Jed Rossotti. 

In addition to these discussions, the leaders have also allowed short selling in their market simulation games.

The Reddit Rebellion proved that young investors can make a big impact on the stock market —a lesson that club leaders are keeping in mind as they begin to adjust their portfolio and think about leadership.

“Our next big step is updating our portfolio and figuring out how we are going to manage it next year. Next meeting we’re starting to hear pitches for what stocks they want to buy next,” said senior club leader Aalia Husain.

Club leaders called upon younger investors, in particular, to take an active role in shaping the future of Potomac’s portfolio.

“I’d just say to all the underclassmen out there, we would love to get you guys involved and we would love to hear some stock pitches,” Jed said.

“The fact is, we’re graduating this year and we want people to be able to take our spot, run the club well in the future, and take full advantage of all the resources Potomac gives the club,” he continued.