Late in January 2021 the short stock squeeze on hedge funds by Reddit subforum r/Wallstreetbets became a national story. The primary narrative seemed to treat the conflict as a novelty story about the insights and cheek of the uninformed masses investing on their phones. This may be a risky prediction, but I think that next week the majority of Reddit investors will hold and the eventual consequences will result in the single largest wealth distribution in United States History.
Mohammed El-Erian writes a good summary of the showdown that is happening and the stakes for the large scale financiers in Bloomberg:
I’m not strong on translating business-speak, but I think he is saying that if the Gamestop shareholders continue to want to buy the stock (not just hold it) and some short purchases still need to be fulfilled, then the value of the stock could continue to rise. And that could wreck one or more of the money making jam boys on wall street.
A casual stroll through Reddit will give you some good examples of the palpable poor-vs-rich anger. Reading r/Wallstreetbets is fascinating for the insider language, the shared sense of purpose and the dual denigration of the community and pride for it’s newly-found capabilities.
Note that the subforum is called r/Wallstreetbets. There is another forum called r/stocks and hundreds of other Reddit investing subforums. The name of this forum betrays the gambling nature of the investment stories and the big wins and losses which make this story so attractive.
Here are a couple of screenshots from the forum with some particular linguistic and representational frames that are worth note. (They are also potentially offensive).
This is insider communication telling the story of the moment to themselves. The community is self-articulated as small-time investors, angry at large hedge funds. The participants seem mostly interested in making visible the disparities of the capitalist system. They call themselves “retards” and “autists” partially to obsure the notion that they are giving financial advice. The reference to apes is shared identity with Harambe the murdered ape imprisoned in the Cincinnati zoo.
They are almost always offering palliative advice. Everyone I know has experienced so much pain and suffering because of debt. Health care and education debt, extra-long work hours and exhaustion from a combination of an economic system that asks more and more from us while offering less of a safety net. The raw anger of the “guy who lives in his truck” and u/space-peanut can be felt. Their motivation is vengence – to not only hold, but to “buy the dip” to continue to invest in the stock for the purposes of enacting revenge for the damage already done by the capitalist system.
Buying the stock is getting harder and harder to do as the trading app Robinhood froze purchases and then throttled users to a single share per day on Friday. The realization that the company was preventing the movement from access to the stock (seemingly to protect the hedge funds) created enormous anger and a quick move to use those investing tools that allowed small investors to buy Gamestop stock.
I’m not alone in thinking that there is a showdown coming this next week, and the press will continue to talk about the inevitable run that will come when some of the larger stockholders sell the stock in order to recoup their now astronomic investments. But I’m not sure that many of the die-hards are going to do that. I think they “like the stock.”
Reading R/Wallstreetbets, one of the users whose posts zoomed to the top of the page is u/Deepfuckingvalue a user named Keith Gill. u/Deepfuckingvalue posts single images of his stock portfolio daily holding gamestop stock showing a 30-40 million dollar investment portfolio. It is a persuasive representation of the enthusiastic rewards for this kind of clubhouse community of seemingly-irrational investors. Watching Gill’s youtube video explaining why he thinks you should buy Gamestop is rational, persuasive and prescient.
U/Deepfuckingvalue argues that Gamestop is likely to stick around because people will shop there and the store will make money. He defends against digital video-game purchases, articulates management changes and basically does wonky due diligence. Around 39 minutes they begin forecasting what the stock might do if people invest. Worth a watch.
Note that this video is from July. The reddit folks who were hipped into this moment have had six months to slip into a few Gamestop shares at prices from four bucks to above four hundred bucks. Quite a few users on the forum have presented their spreadsheets of gamestop changes showing hundreds of thousands of dollars of gains and a shared enthusasm to hold the stock.
I think that a few folks will sell a few shares to get some cash to pay bills or floss their new found wealth. But I bet that the majority of folks will keep the majority of their shares. Others, excited to be part of the community of Gamestop stock owners will be ready to buy the stock even at the inflated price because it comes with a lot of extra value from the moment. But I think they are thinking that they will get to own a long-standing business in their community, not stock that they’ll sell when it is convenient.
I think that that individual investors will continue to seek out nostalgic businesses that have been marked for decline by hedge funds. AMC and Bed Bath and Beyond appear to be part of this redemption story because they hit the sweet spot of businesses that people want to defend from destruction and because they have been shorted by hedge funds.
This may point to a kind of crowd-funded community development opportunities. In the past most small investors have been sway to the moves of the market. If your local grocery store went out of business you might have to drive 45 miles to shop somewhere else. The ability to quickly invest money to keep businesses afloat because we need them hasn’t been available before this. I wonder if the abiliy to save a few chain corporations from bankruptcy will make a dramatic difference, but it is an interesting change in presumed power and maybe it will prevent a few food deserts.
But we also are going to see a huge series of changes from this moment because a couple of billion dollars is moving from hedge funds to a lot of previously-small scale investors in Gamestop. These Gamestop millionaires are going to going to make a big impact in the financial and cultural moment of 2021.