Best Answer
Right now, it is impossible to discuss the financial markets without looking at what happened with GameStop stock, so we are going to focus our example essay outline on this event. To understand how a bunch of small investors organizing on social media were able to disrupt hedge fund managers and traditional ways that they profit off of failing companies, it is important to understand the concept of shorting stocks.
I. Introduction
A. Stock shorting
B. Why businesses fail from stock shorting
C. Why GameStop was vulnerable
D. The impact of purchasing GameStop stock on the market.
E. Wall Street versus small investors
F. Conclusion
II. Stock shorting
A. Investor borrows a stock
B. Investor sells the stock
C. Investor buys back the stock to return to lender
D. If the stock price drops between the investor selling the stock and buying it back, the short seller makes a profit.
E. If the stock price rises between the investor selling the stock and buying it back, the short seller loses money.
III. Why businesses fail from stock shorting.
A. Ideally, the stock market should reflect a company’s real value.
B. When the market is manipulated for short sales, a company’s stock price begins to fall.
C. Once a stock price begins to fall, it can create panic among investors, resulting in more efforts to sell off the stock and lower stock prices.
D. This can artificially reduce a company’s market value and lead to things like bankruptcies.
IV. Why GameStop was vulnerable.
A. With digital game downloads, brick and mortar game sales have been falling.
B. This was increased during the pandemic.
C. Wall Street did not believe GameStop would recover, and its stock prices fell.
V. The impact of purchasing GameStop stock on the market.
A. Initial attempts to purchase GameStop were not designed to disrupt Wall Street, but because people believed Wall Street was undervaluing GameStop stock.
B. These purchases drove up the price of GameStop.
C. This disrupted those who would have profited on driving GameStop into bankruptcy through stock shorting.
D. Redditors responded by encouraging more GameStop purchases.
VI. Wall Street versus small investors
A. Small market players have been able to disrupt Wall Street
B. GameStop has wildly fluctuated
1. At one point is was up 14,300%
C. Redditors have rallied behind other flagging companies, too
1. AMC
2. Blackberry
D. Big investors lost billions of dollars
E. The New York Stock Exchange halted trading on GameStop multiple times
F. App-based traders restricted trades of GameStop and other fast-moving stocks
1. This kept people from buying the stocks
2. Allowed people to keep dumping stocks
3. Clearly favored wealthy investors
4. Robinhood is being sued for market manipulation because of this
VII. Conclusion
A. Demonstrated that small investors do have the ability to control the market.
B. Showed that Wall Street will shut down small investors.
C. Highlights class-based conflict in the U.S.
D. A developing story that is not yet resolved.
