It all came together in recent weeks with the stock of GameStop – where a swarm of individual traders attacked the hedge funds who were shorting the stock. Irrespective of what happens in the long run, the early score, as The Economist put it, is “Retail punters 1, short sellers 0.”
Bullish retail traders were ginned up when the market makers who sold them their bets were forced to hedge against rising prices by buying shares. Short-sellers were also forced to buy shares after incurring losses worth several billion dollars. The wall-to-wall coverage of the stock has prompted yet more investors to pile in. GameStop was the single most traded stock in America on January 26th; volumes matched that in the five biggest tech giants combined (see chart). The share price more than doubled the next day. The masses are coming for other heavily shorted stocks too. Share prices for AMC, a chain of cinemas, and Nokia and Blackberry, which once made popular mobile phones, have also spiked.
Jumpy professional investors will now have to keep one eye on the mob.
This past week has been a banner one for Reddit’s island of misfit investors.
WallStreetBets exploded into the mainstream, moving from the front page of Reddit to the front page of the New York Times and nearly every other major news site. The subreddit’s short-squeeze of GameStop helped shoot up the price of the video game retailer’s stock a mind-boggling 1,700% from the beginning of January to Wednesday (before it fell again Thursday), captivating the minds and wallets of investors — both casual and institutional — and financial regulators.
But while millions are now discovering WallStreetBets for the first time, it has been building momentum throughout the pandemic. One can trace its epic rise to a perfect storm of favorable conditions: the exponential growth of the app Robinhood and its no-fee options trading, the extreme volatility Covid-19 brought to the markets, the stimulus checks mailed to millions of Americans, the lack of televised sports for much of the year, and the unwanted free time stuck at home the pandemic has forced on many people.
Describing itself as if “4chan found a Bloomberg terminal,” the forum’s giddy nihilism, inscrutable language and memes fueled a war on a perceived corrupted mainstream.
And it’s led WallStreetBets’ evolution into an unprecedented force of retail-investing financial radicalism, offering the allure of get-rich-quick gains to a rapidly expanding audience of millions.
Here is the stub from a Daily Mail article: “How minnows sank the Wall Street sharks: It’s the most astonishing financial story for years – the army of small investors who took sweet revenge on cynical hedge fund millionaires.”