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In the case of Gamestop, the question of winners and losers belies the true significance of the story. Terminology the retail investors used when discussing the stock transformed from irreverent humor to battle cries encouraging the subreddit to buy and hold. They began to actively promote the idea of punishing those they perceived as responsible for the 2008 financial crisis.
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As retail investors began to notice the significance of this moment, the community’s mood shifted. It’s no coincidence that other stocks pushed include Blackberry, Nokia, and AMC. On the other end are the hedge funds who aimed to profit off the downfall of iconic American brands. On one side are the retail investors – ordinary individuals who believed that Gamestop deserved a chance and who hated Wall Street’s attempts to crush it with their short positions. For reference, the subreddit previously had just under two million.Īs the surge continued, costing hedge funds billions, a David vs. As the stock exploded in value and into the news, the subreddit did the same, gaining about six million new members during the month of January. The leader of the Gamestop push was a user named DeepFuckingValue, who noticed the aforementioned technicals that enabled the short surge. Their office was r/wallstreetbets (WSB), a subreddit self-described as if “4chan found a Bloomberg terminal.” Their culture mimics standard-issue internet edginess and their prevailing inclination is to treat the stock market as one giant casino. Unlike previous attempts to hijack the stock market by leveraging its mechanics, the predominant explanation was the coordinated attempts of millions of retail investors. However, while the ultimate responsibility for the surge certainly matters, the narrative it fueled may have more lasting importance. The mechanics of Gamestop’s sudden peak may even be similar, as some experts believed Wall Street power players fueled the surge. In 2008, Volkswagen briefly became the world’s most valuable company, when Porsche increased its stake in a surprise announcement and shorts rushed to cover their losses.
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This practice, known as a short-squeeze, proved highly effective, with share price remaining inflated until this past Monday’s sell-off.Ī short-squeeze is not unprecedented. Since Gamestop had relatively few shares outstanding, buying and holding the stock created artificial scarcity, sending the price higher yet. Buying relatively inexpensive call options had a similar effect, as those selling the options bought stock to hedge against potential losses. When a stock’s price rises, investors with short positions buy more shares to mitigate potential losses, sending the price even further. A group of investors, both retail and institutional, identified that institutional investors shorted 114% of the shares available to be traded. Over the course of a week, its stock, once valued as low as $2.57 per share, rose to an all-time high of $500 on January 28. Gamestop is a dying brick and mortar video game retailer that hasn’t reported a profit since January 2020.