What the Heck is a Stonk?

If you have no idea what a “stonk” is, don’t worry about it. I had no clue until the last couple weeks brought a whole new social media world into the spotlight. The term “stonk” is basically just slang for “stock.” You’ll see the term used heavily on social media forums like Reddit’s Wallstreetbets. Even the world’s richest man, Elon Musk, has been tweeting about “stonks” – specifically GameStop.

I thought the visual below was timely, given the craziness of the GameStop short squeeze and other heavily shorted stocks like AMC, BlackBerry, etc. It does a good job of breaking down what led up to this whole powder keg.

Here’s the Cliff’s Notes version of what went down:

• Back in September 2019, a member of Reddit’s Wallstreetbets subreddit group saw what he thought to be unrecognized value in GameStop (GME).
• Many hedge funds and institutional players had amassed sizeable short positions on GME and the Wallstreetbets community caught onto this high short interest and wanted to “squeeze” them out of their positions.
• In August and September of 2020, GameStop broke up from its lows around $4 a share, and returned 66% and 53% respectively, reaching new highs of $11 a share.
• Hedge funds piled in further as short interest on publicly traded shares reached 120%, yet GameStop’s uptrend continued, reaching more than $20 a share by the end of December.
• As GameStop’s price ran into the triple digits by the end of January, Melvin Capital (hedge fund) was forced to close their short position despite a $2.75B investment from Citadel and Point72 (also hedge funds).
• On January 28th, when GameStop shares reached highs above $460, Robinhood and other brokers halted purchases of GameStop shares and options, infuriating individual investors across the globe. (this will surely not be the last you hear of this, as there are talks of congressional investigations and hearings on this matter)
• Shares of GME have since tanked (currently hovering around $68/share).

Where this will all end is anyone’s guess. The good news is that the broader market has digested this mania quite well, and has been moving higher over the past few sessions.

Source: Visual Capitalist