A look at the GameStop Stock phenomenon

Some social media users made thousands of dollars recently by collectively investing in GameStop stock. It wasn’t just online strangers across the world who got involved, either.

Eric Shaw, a student at Fresno State, managed to buy shares of the stock before its peak closing price of nearly $350. He says the experience taught him a lesson in extreme caution.

“Only invest what you can afford to lose. When you look around and stuff, you see these people who like lost over $100,000 because they put all-in or got a loan on something. Never do that!” said Shaw.

Online investors chose to target GameStop’s stock after they noticed hedge funds were heavily shorting it. Shorting is a process that involves temporarily borrowing shares of a stock, immediately selling them at the current price, then buying them back once the price has fallen and pocketing the difference.

If the bet pays off, it can be a lucrative endeavor. Experts have warned, however, that if the price of the stock fails to go down, it can spell financial disaster.

K.C. Chen is the faculty chair for the Finance and Business Law Department at Fresno State. He has strong words for any investors considering shorting stocks.

“I advise investors not to short. Shorting is very risky,” said Chen. “You have to borrow the shares on margin, and also you have to pay interest on that. And when you short a stock the loss is unlimited.”