Financial markets are efficient. Unless you’re insider trading or a genius, it’s likely whatever you think about a stock is already priced in. So how did a group of unsophisticated individual investors manage to bleed a billion dollars a day in January 2021 from elite hedge funds? A Reddit user with the handle u/DeepFuckingValue placed a huge bet on Game Stop (GME), and turned it into a meme by posting about it in Reddit’s r/WallStreetBets forum.
The retailer wasn’t dead yet. GME’s cash position exceeded its debt, Ryan Cohen (of Chewy fame) bought 13% of the company and took a board seat, and Dr. Michael Burry of ‘The Big Short’ fame took an interest in the company. The short trades against GME added up to 140% of existing shares. If the stock price went up for long enough, anyone with a short position would be forced to buy the stock at any price. Redditors piled in, and pushed the price up 30x to $500 a share.
The stock no longer represented the underlying value of a video game retailer, it morphed into an Occupy Wall Street version 2. Just like buying Union bonds in the Civil War let sympathizers of the cause express their support, trading apps like Robinhood were enabling small size investors be part of something bigger than themselves. What War Bond buyers knew, and most of us forget, is that investing isn’t always about picking winners, sometimes it’s about making them.
| Name | Link | Type |
|---|---|---|
GameStop short squeeze | Reference | |
How Civil War History Explains Memestocks | Article | |
The $GME Saga, explained by a Financial Analyst | Blog |