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The Indiana Daily Student

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Some IU students won big after GameStop's stock surge. But experts still urge caution.

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IUPUI sophomore Sam Chen said he couldn’t believe his eyes when he checked the stock market Thursday morning.

More than a year ago, Chen bought 50 GameStop stock shares for about $4.60 per share. He said he originally bought the GameStop shares for fun, thinking because the price was already so low, he wouldn’t lose much if it fell further.

Thursday morning, the stock had risen almost 8,600% since he bought the shares to $396 per share. Doubting the stock price would stay high for long, Chen said he immediately sold all his shares Thursday and profited $19,570.

His profit from this stock trade alone could cover an IU in-state student’s tuition and fees for the 2020-21 academic year with $8,350 to spare.

Chen is one of many amateur investors cashing in shares of soaring stocks this week. Video game retailer GameStop’s stock skyrocketed over the past week to more than 1,800% more than its price at the start of the year.

Wall Street hedge funds previously bet GameStop’s steadily declining brick-and-mortar business would lead to lower stock prices and short-sold its stock, according to Fortune Magazine. Short-selling means borrowing shares from their owners, usually stockbrokers or portfolio managers, expecting their price to fall, then buying them back at a lower price to return the shares to their owners and profit off the price difference. 

Some investors on the Reddit forum Wall Street Bets believed GameStop’s stock was undervalued by the short-selling hedge funds and that its price would rise. Through rallying amateur investors to buy in GameStop shares, they fought back against the hedge funds profiting from the company’s declining business. The stock’s price soared and caused one of the short-selling hedge funds, Melvin Capital, to buy back the GameStop shares it had sold at a deficit, causing it to lose 53% of its assets in January. 

Despite the stories of overnight fortunes, Charles Trzcinka, professor at the Kelley School of Business, said amateur investors including college students shouldn’t expect to change their lives profiting off the recent stock surges.

“For every kid who’s a gamer who turns $10,000 into a million, there’s also going to be a bunch of kids who lose their college tuition,” he said.

Trzcinka said it’s relatively safe for IU students to trade on the stock market with a small amount of money once or twice a month. He said trading thousands of dollars every hour is unwise for amateur investors because they would be competing against Wall Street professionals with more information about the market than the public.

“You should probably keep your investing dollars away from GameStop and just watch the show from afar,” Forbes Advisor staff Taylor Tapper said.

Junior Brandon Gorz, co-president of the Financial Services Club, said he didn’t invest in GameStop’s stock. He said he tends to trade stocks based on long-term assessments of companies’ performances.

“As an investor, I know what I’m good at, and I know what I’m not good at,” he said. “I’ll watch from the sidelines.”

Gorz said his advice for students is to understand the stock market before they start making investments. Considerations to be made include the financial risks, the stock market’s structure, such as how stock orders are routed and executed, and the background of the companies with their invested stocks.

“If you do a lot of reading and you follow the markets diligently, I’m pretty confident you could probably make a very good investment,” he said.

Chen said he was skeptical that GameStop’s stock price would stay as high as it is because he believed it wasn’t supposed to rise until last week. He said he read many news articles to understand the price surge.

“I feel like it’s kind of safer just to pull out the money for the profits I already got from it and just not risk it going lower,” he said.

Chen said he puts all his earnings from the stock market in his retirement fund, which he decided he wouldn’t use until he turns 59. He said he doesn’t want to have too much money to tempt him to spend on things he doesn’t need as a college student.

“I would like to have a stable future,” he said. 

“For every kid who’s a gamer who turns $10,000 into a million, there’s also going to be a bunch of kids who lose their college tuition.”

— Charles Trzcinka, professor at the Kelley School of Business

CORRECTION: A previous version of this article incorrectly stated the IU school Sam Chen attends.

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