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 that what appears to be armed with 20-year-olds, MooMoo and TradeStation aim to get stocks up and hedge funds for takedowns.
The drama got GameStop stocks up nearly 2,000% over the past month. On Wednesday, the troubled video games retailer soared again, this time by more than $ 200, to top $ 350 per share.
While GameStop stocks have been a favorite of Wallstreetbets members, the money-losing company has closed deals and has been a target for hedge funds and so-called short sellers who bet that the stocks of certain companies will fall.
Wallstreetbets posters have struggled by vowing to never sell, encouraging each other to buy more stocks, and attacking 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 to focus on other businesses that, much like GameStop, the rest of Wall Street has pronounced dead. Former phone maker Blackberry, LaCroix seltzer owner National Beverage, and troubled film chain AMC have also risen following mentions 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 hail their recent triumphs as a win for the 99%.
“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: claims to plenty of overnight stays. A prominent Wallstreetbet member said he turned a $ 50,000 investment into $ 22 million, mostly in the past few weeks. Kevin Roose, a New York Times reporter, tweeted Monday about a chat with a “prepubescent child” who said he made $ 15,000 on GameStop that day by trading his brother’s investment app .
All of this is reminiscent of the day trading boom in the late 1990s, when many retail investors saw their portfolios grow 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 virtually impossible to know if the people chatting on Wallstreetbets are actually buying stocks, who they are, and if they’re actually making money from their trades. Some have referred to the GameStop clash as a classic David-Goliath battle.
However, Wall Streeters, stock promoters, and even CEOs have been known to talk about investing in internet discussion boards. 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 surge, the “short squeeze” of hedge funds betting against the company’s stock, and whether “Meme Stocks” are the new dot-com bubble.
What is Wallstreetbets?
Wallstreetbets is a rapidly growing Reddit board with more than 2.4 million followers, including at least 100,000 new followers 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 revolves around 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 any indication of your preschool’s trading competition,” the board’s rules state.
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 is 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 those options were now worth a little over $ 22 million.
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 the company’s board of directors. Cohen, whose investment firm has acquired a 10% stake in GameStop, wants the troubled retailer to focus more on selling online.
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 if the stock rises instead of falls, short sellers need to quickly buy the stocks they don’t own to avoid further losses. When many short sellers all believe a particular 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.
Still, cheerleading commentators on Wallstreetbets seems to have played an outsized role in GameStop’s nearly 2,000% rise. Additionally, at least some of the posters seem to 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 thinks of the huge surge in The share price indicates 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, it doesn’t seem like the Securities and Exchange Commission or anyone else is doing much about it.
Are “meme stocks” the new stock market bubble?
GameStop stocks certainly appear to have entered bubble territory. Sales for the company, which is currently closing 1,000 of its 5,000+ stores, are down 300%. And that decline happened during the pandemic, and people are spending more on home entertainment, not less.
At $ 350 per share, GameStop now has a market value of $ 26 billion. That’s more than the combined market value of Gap, Kohl’s, and Macy’s.
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.
“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.”