A meteoric surge in GameStop’s stock price has set the eyes of stock market watchers on a fast-growing Reddit discussion forum called Wallstreetbets, which apparently 20-year-olds are armed with, MooMoo and TradeStation aim to get stocks up and hedge funds for takedowns.
The drama caused GameStop shares to jump nearly 2,000% in less than a month. On Wednesday, the troubled video games retailer soared again, this time by more than $ 200, to top $ 350 per share. GameStop’s share price fell a little closer to Earth Thursday, falling about a third, or about $ 115, to $ 235. But that’s still more than the $ 14 GameStop ordered back in December.
While GameStop stocks have been a favorite of Wallstreetbets members, it’s a money-losing company that has closed deals in years of declining sales and has been a target for hedge funds and so-called short sellers who bet that certain companies’ stocks will fall .
Wallstreetbets members have fought back by vowing never to sell. They have stimulated each other with posts urging them to buy more stocks and attacked critics of their favorite stocks. Andrew Left, a noted short seller who predicted GameStop’s demise, stopped commenting on the company last week..
Now Wallstreetbets members appear to be expanding their goal of focusing on other businesses that, much like GameStop, the rest of Wall Street has pronounced dead. Shares in former phone maker Blackberry, LaCroix seltzer National Beverage and troubled film chain AMC also rose in January after being featured on the Reddit board.
At a time when online viral movements are having a growing impact on real events, including the deadly storm of theSome describe the Wallstreetbets saga as the conspiracy equivalent of the stock market. Wallstreetbets is Occupy Wall Street meets QAnon, thinking goes. The posters speak of taking revenge on the hedge funds they insist on secretly controlling Wall Street and applaud their recent triumphs as a win for the 99% versus the richest 1%.
“Hedge fund managers live in the past and continue to look to retail investors,” wrote a Wallstreetbets commentator on Wednesday. “This is the world they want to live in. This was the past.”
Talk about wealth overnight
Increase interest: fantastic demands on the number of overnight stays. A prominent Wallstreetbets member said he turned a $ 50,000 investment in GameStop into $ 22 million, mostly in the past few weeks, and his GameStop net worth rose to a staggering $ 48 million on Wednesday night. Kevin Roose, a reporter for the New York Times, tweeted a chat on Wallstreetbets Monday in which a “prepubescent kid” said he made $ 15,000 that day with GameStop by using his brother’s investment app have acted.
It’s all reminiscent of the day trading boom in the late 1990s, when many retail investors saw their portfolios soar but were ultimately wiped out by the dot-com bubble. This time around, there may be young investors involved who weren’t even born in the late 1990s.
One caveat: Reddit, like other internet discussion forums, is an anonymous environment. That said, it’s practically impossible to know if the people chatting on Wallstreetbets are actually buying stocks, who they are, if they’re really making money from their trades, or if they’re even people and not bots programmed to do it, pump up the trade talk.
Some have referred to the GameStop clash as a classic David-Goliath battle. However, Wall Streeters, stock promoters, and even CEOs are known to have talked about investing in internet discussion boards and other venues for the past several decades. So there is no way of knowing if this is actually the case that Main Street wins you over Wall Street.
Here’s what we know about Wallstreetbets, GameStop’s staggering spike, the “short squeeze” of hedge funds betting against the company’s stocks, and whether “meme stocks” are the new dot-com bubble.
What is Wallstreetbets?
Wallstreetbets is a fast growing Reddit board with nearly 5 million followers, including at least 2 million new ones in the last 24 hours. As with other internet discussion forums, users typically use an online handle rather than their real name. Much of the discussion is about stocks – and it comes with a lot of attitude and tough talk.
The Wall Street Bet Board calls its supporters “degenerate”. Members are asked to stay the discussion on stocks and politics off and only brag about actual trades, not ones they would have liked to have made. “Nobody gives an overview of your preschool’s trade competition,” says the board’s rules.
The board members have also shaped their own terms. “Tendies”, for example, are stock market profits. It appears to be an abbreviation for chicken tenders, which are featured on a poster on the Reddit board as a dish for kings and financial oligarchs.
One of the most popular Wallstreetbets membership dues called DeepF ** kingValue. In mid-2019, the poster began promoting the idea of buying GameStop options that would pay off if the stock hit $ 8 in late January 2021. At the time, the stock was trading for a little over $ 4 per share. Options appeared to cost around $ 50,000. He regularly publishes a bank statement, starting Tuesday night, showing that the same options were valued at just over $ 22 million and hit $ 48 million after Wednesday’s big rally.
Wallstreetbets suddenly went private on Wednesday night after an explosion of social media and traditional media coverage of the GameStop phenomenon. This also applies to the talk page on the Discord communications app, which stated that the stock chatter was discontinued because of “hateful” news rather than evidence of stock manipulation.
However, Wallstreetbets’ Reddit forum and the Discord channel were back up on Thursday morning. Reddit co-founder Alexis Ohanian offered assistance to the forum on Thursday, describing the investor-coordinated GameStop stock trading frenzy as a turning point in the U.S. investment landscape.
Why did GameStop’s shares go up?
Wall street bets may be one reason, but it’s not the only one. GameStop received its first mentions as a recommended investment in WallStreetbets back in mid-2019, long before the stock started rising. This suggests that what is fueling the stock’s stratospheric surge now isn’t just recent talk on the discussion board.
The recent run of GameStop stock appears to have started shortly after Ryan Cohen, the co-founder of Chewy, joined. Cohen, whose investment firm has acquired a 10% stake in GameStop, wants the troubled retailer to focus more on online sales.
GameStop’s stock rose so much this week that the company briefly became the most valuable member of the Russell 1000 index for small-cap stocks with sales of $ 5 billion and a market value of nearly $ 30 billion on Thursday morning US dollars. more than the combined value of Gap, Kohl’s, and Macy’s.
What is a “short squeeze”?
Another reason GameStop’s shares are rising: the mechanics on Wall Street. Enter the short squeeze explanation.
When short sellers bet that a stock will go down, they are effectively selling stocks they don’t have with the promise of delivering those stocks to the buyer at a later date. Hence the term short sale.
The problem is that when the stock rises rather than falls, short sellers need to quickly buy the stocks they don’t own to avoid further losses. When many short sellers all believe a certain stock is going to fall, as it did with GameStop, which hasn’t made a profit in three years, and the stock goes up, chaos can ensue in the rush to buy stocks. That seems to have happened last week.
Still, cheerleading from commentators on Wall Street bets seems to have played an outsized role in GameStop’s nearly 1,200% surge since January. In addition, some of the posters have quite a bit of Wall Street expertise.
GameStop was Wall Street’s most severely cut stock in early January. Some of the Wallstreetbets posters seem to understand that targeting and buying the stock as a group of individual traders, all rowing in the same direction, would put a quick squeeze on and the stock price would go up.
Are GameStop releases manipulated?
The coordinated buying effort has led some to label GameStop’s stock surge as a case of market manipulation. But there isn’t much evidence of that.
On Tuesday, Michael Burry, who became famous for predicting the 2008 real estate bankruptcy (and was a central figure in Michael Lewis’ book “The Big Short”) tweeted that while he believes in GameStop, he himself believes the huge surge in its share price suggests indicate that something illegal is going on.
“There should be legal and regulatory implications,” Burry tweeted. “It’s unnatural, crazy and dangerous.”
Hedge funds and other large institutional investors are not allowed to coordinate their stock purchases. However, individual investors are not subject to the same restrictions, and there don’t seem to be any rules preventing them from discussing which stocks they like or dislike.
While veteran traders like Burry and regulators may not want to see what happens to GameStop, there doesn’t seem to be much right now that the US Securities and Exchange Commission or anyone else can do about it.
However, US Treasury Secretary Janet Yellen and the Biden government economics team “monitor” the stock market activity, White House spokeswoman Jen Psaki said on Wednesday. And the SEC issued a statement that its market cops are aware of the recent volatility of certain stocks and are working with other regulators to “assess the situation.”
Massachusetts Democratic Senator Elizabeth Warren got involved via Twitter, vowing undisclosed reforms, and turning criticism of Wall Street’s creation of her own personal casino while everyone else pays the price. “
And on Thursday, Robinhood, the popular free trading app that has attracted a large audience of young customers, banned users from buying stocks in GameStop, AMC, Blackberry, and other stocks that appeared to have skyrocketed on social media chatters were. This was answered with calls for a boycott of the service on Wallstreetbets.
Not happy either: Democratic Congresswoman Alexandra Octavio Cortez. She said regulators should investigate whether it is fundamentally unfair to prevent individual investors from buying more GameStop stock – while hedge funds’ trading movements are fully on custody.
Are “meme stocks” the new stock market bubble?
GameStop’s stratospheric share surge arguably entered the Bubblesphere based on traditional Wall Street metrics. Sales for the company, which is currently closing 1,000 of its 5,000+ stores, are down 30%. And that drop in sales occurred during the pandemic, and people are spending more on home entertainment, not less.
Other Wallstreetbets stocks also appear to be entering the bubble area. AMC shares rose $ 9 to nearly $ 15 on Wednesday and are up 600% over the past month, despite most AMC theaters remaining closed due to the pandemic and the company has done so. Things cooled off a bit on Thursday, but the longer-term lesson seems clear to investment professionals, at least.
“This is not the first time we’ve seen speculative bubbles,” Thomas Gorman, partner at Dorsey & Whitney law firm and securities law expert who worked for the SEC for seven years, told CNBC on Wednesday. “It’s just the latest.”