"Dude just invest your whole account on Game Stop and let's squeeze these short guys. We're taking this to the moon." - Some high school senior somewhere on his way to 2nd period
Have you ever heard the phrase "it's never too soon to start investing?" Well a new breed of stockbrokers known as Gen Z have taken this to a whole new level.
Over the past week, a popular Reddit forum known as "wallstreetbets" completely changed the dynamic of how retail investors (people like you and I) approach trading stocks. Or did they..?
It all started early last week when a group of people on the forum aforementioned decided they wanted to "stick it to the billionaires." Their method of action was to perform - what I can only assume they googled 5 minutes prior to actually proposing the idea - a short squeeze.
Now, I will be the first to tell you that I don't consider myself a savvy investor and am in no way providing financial recommendations. However, I will do my best to explain what happened when this group of Reddit stockbrokers decided to "stick it to Wall Street." Below is my interpretation of how it all went down.
It all started when a handful of retail investors found out that large hedge-funds such as Melvin Capital and Citron, held significant short positions in GameStop (GME). Honestly, a smart move considering the decline of GameStop's brick-and-mortar retail stores and the growing digital marketplace of which they held virtually no marketshare.
I won't delve too deeply into the details, but holding "short" positions basically just means that these large hedge-funds were betting on the stock price to go down - like I said probably a smart move.
However, "redditors" came to the rescue and created a social media frenzy by encouraging people to buy as many shares of GameStop stock as possible. The objective was to drive up the stock price so much that the institutional investors like Melvin and Citron would have to start buying back their "short" positions and therefore driving the stock price up even further.
Emotional teenagers with a smartphone and an allowance were successfully able to increase the stock price of GameStock from $18/share to over $300/share with the help of social media outreach campaigns. Within hours of market open on Tuesday, Melvin Capital and Citron had lost BILLIONS. What a win for the little guys, right?
Wrong.
I suppose that was a significant "win" for the little guys (us retail investors) against the Wall Street elite. However, it turned out to be one of those situations where we might've won the battle only to lose the war.
The day after market's essentially turned upside down and GameStock traded with almost 4x the amount of volume as Apple, the trading of GameStock hit a significant roadblock. Robinhood, a popular trading app amongst novice traders, decided to restrict the purchase of more shares of GameStop.
This infuriated everyone in America except for Melvin and Citron, who had a day long break to cut their losses and withdraw their short positions after seeking additional backing and support from notable investors such as New York Mets owner, Steve Cohen (who - like the Mets - is trash).
Although Robinhood allowed for normal unrestricted trading to resume the next day, I would expect they lose significant portions of their following due to their complete backtrack on everything they stand for.
I mean, it's pretty ironic right? A company named "Robinhood" essentially stealing from the poor to give to the rich.
As the week of market trading closed, the price of GameStock continued to rebound from the 24-hour setback due to the ruthlessness of Robinhood and the rest of the Wall Street elite's that took to CNBC to cry about their 2% loss.
So what does all this mean?
Well, going into Monday we will see how the volatility of the market and stocks like GameStop play out. Aside from just the near future, many people believe this whole story showcases a new "changing of the tide" for how retail investors are able to interact in the markets.
However, I'm not so optimistic. If history teaches us anything it's that institutional investors win in the long run. Similar strategies by retail investors have come and gone in the past. Will this be different due to the increased power of social media and ease of access to commodities? I'm not convinced.
One thing I can say is that I'm pissed I deleted Reddit a few weeks ago and missed out on this little shindig. Maybe GameStop will cut me some slack and offer an extra .20 cents for the stack of old games I've got lying in the closet.
For now, I'll just sit behind my laptop screen and keep offering speculative stock advice and providing satirical interpretations of Wall Street market volatility.
Vin
Photo Credits: cnbc.com, The Motley Fool, Benzinga
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