Pretend you invested $10,000 in GameStop stock at 10 a.m. Eastern time Thursday.
By 5:41 p.m., after-hour trading had pushed it back up to $5,645.
Regardless of when youre reading, just know this: All these numbers are already ridiculously outdated.
Heres why GameStop has been on such a wild ride and what you should take away as aregular investor.
How Did GameStop Rise 2,500%?
The retailerbuys and sells old video games, which has been tough as gaming has gone digital.
COVID-19 only made things worse.
At their low point during the pandemic, GameStop shares sold for $2.57 apiece.
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GameStop shares started surging in the final months of 2020.
GameStop stock closed out 2020 at $18.85 a share.
Thursdays short-lived highs represented a 2,500% increase in less than a month.
Thats what a lot of big institutional investors started doing with GameStop stock.
Suppose Company XYZs stock is trading for $50, but you think its a loser of a stock.
You could simply avoid what you think is a bad investment.
But you could also give a shot to make money by shorting XYZ stock.
Or at least you could if you were a deep-pocketed Wall Street investor.
Most brokerages have pretty strict rules about whos allowed to take short positions.
Suppose youre right and the price plummets to $20 a share.
Youd walk away with $30 profit.
But what if youre wrong?
Theres no limit to how much you’ve got the option to lose.
If the stock climbs to $100 or even $1,000?
This week, GameStop became the most heavily shorted stock on the market.
At least two huge hedge funds bet against GameStop with short positions.
One hedge fund tweeted that people buying GameStop shares are suckers at this poker game.
How Regular Investors Fought Back
That didnt sit well with a lot of regular investors.
Its called a short squeeze.
Stocks issued by other troubled companies, like AMC Theatres and Blackberry, experienced a similar phenomenon this week.
If youd shorted a stock and it kept shooting up, youd probably panic.
Youd scramble to buy shares as quickly as possible before they soar even higher.
The cost of betting against GameStop?
More than $5 billion, according to estimates on Thursday.
Meanwhile, prices continue to fluctuate to extremes as investors jump in or cash out.
Or at least it was as of 5:41 p.m.
Here are three takeaways for the rest of us.
Nothing has changed about GameStops value.
Some traders were able to make huge profits on GameStops meteoric rise.
But despite all the unbelievable price swings, absolutely nothing has changed about the companys actual value.
Its still struggling with the shift to digital gaming and remains deeply in debt.
When you buy stock in a healthy company, share prices will rise and fall.
Buying cheap stocks is incredibly risky.
That would require the ability to perfectly predict the market, something absolutely no one can do.
Getting rich is boring for most people.
Ask anyone whos built wealth and wasnt born rich how they did it.
They probably wont tell you a story about taking short positions or buying $2 stocks.
Most likely theyll tell you that theystarted investing early.
Theyll stress consistency and long-term investing overday trading.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
She writes the Dear Penny personal finance advice column.
Send your tricky money questions to[email protected].
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