Whether one thinks that the overall equity market is currently valued properly or not, something very unusual happened in the last week of January to GameStop stock. Its price rose 323 percent for the week, and 1,700 percent for the month (that is, an 18-fold increase). This was a speculative bubble. That is, the price departed from fundamentals.
Some investors who got in early and got out early made a lot of money. Just as many people, who got in too late or stayed in too long, lost a lot of money, as valuations came back to earth.
We focus on GameStop, an ailing bricks-and-mortar retailer of video games and consoles, for concreteness. But a similar phenomenon has affected the prices of a number of other assets.
Participating in a speculative bubble is like playing roulette in a casino. The role of “the house” in this casino is played by brokers such as retail-investment platform Robinhood or financial-services company Charles Schwab. So far, not so unusual. Speculative bubbles happen from time to time.