Well, That Was Weird
Bloomberg Businessweek|February 08, 021
Tendies. GameStop. Silver. SPACs. What. The. Hell. A sane person’s guide to a bonkers stonks market
Pat Regnier

There’s been a rebellion in the stock market, in case you hadn’t noticed. The Battle of GameStop, the stampede of the meme stocks, and the rage against Robinhood were as transfixing as the bursting of the dot-com bubble—only this time the action was focused on a handful of companies associated with 1990s culture, and this time everything was going up. Thanks to traders talking it up on social media, the stock of GameStop Corp., the unprofitable mall retailer of video games, climbed as much as 1,745% from the start of the year. The AMC movie theater chain peaked at a gain of 839%; BlackBerry and Nokia, which once made very popular phones people strapped to their belts, spiked 279% and 68%, respectively; and Koss (headphone maker), Build-a-Bear Workshop (chain of stores that … you know what they do), Tootsie Roll Industries (yes, that Tootsie Roll), and, for some reason, silver all shot up.

The past two weeks broke a lot of people’s brains re: how Wall Street works. One money manager told Bloomberg News that GameStop was his “most-hated stock of all time.” Also, a lot of well-compensated hedge fund managers lost huge sums because they’d been betting on the stocks mentioned above falling. And the frenzy was all caused by an extremely online crowd that Doug Henwood, writing in the leftist publication Jacobin, wryly called “the wrong kind of people. They don’t live in Greenwich in houses with twenty-car garages.”

Instead, they came from the frequently profane Reddit message board WallStreetBets, where posters talk about stocks and often band together to try to move prices. It has its own insider language: “stonks” for stocks and “tendencies” for gains because chicken tenders are a reward for being good (and because it’s funny). Lots of WSB posters don’t buy stocks directly but instead use options, which allow them to take big positions for a relatively small amount of money, a form of leverage that amplifies potential gains as well as risks. They also like to go after the so-called shorts, investors who bet against stocks. The idea is that by pushing up a highly shorted stock, the WSB crowd can “squeeze” shorts into protecting themselves by buying the stock themselves, triggering a (temporary) upward spiral.

WSB’s campaign for GameStop gained steam early on with an investment case made by a poster named DeepF ---value, who in offline life, Reuters reported, is a chartered financial analyst who used to work at an insurance company. It can be hard, sifting through the memes, to tell when the Redditors are glomming onto a stock because they truly like the business, or because they think they can manipulate the shares, or because they think it would be hilarious to mess with some hedge funds. Like so many movements that have bubbled up from social media, New York Times tech and media writer John Herrman observed, the GameStop push was sort of a joke until it wasn’t.

And it got political, in ways that have been hard to make sense of in the heat of the moment. What else would bring together the likes of tech-bro idol Elon Musk—who fanned the rally by tweeting “Gamestonk!!”—and progressive U.S. Representative Alexandria Ocasio-Cortez? On Jan. 28, Robinhood Markets, the zero-commission trading platform that’s been the gateway to the market for many young investors, restricted buying in GameStop and other popular Reddit stocks. “This is unacceptable,” AOC tweeted. She called for hearings into why retail investors were blocked “while hedge funds are freely able to trade stocks as they see fit.”

Robinhood later said it had to cut off buying temporarily because the overwhelming demand for those volatile stocks was causing its clearinghouse—a behind-the-scenes organization that makes sure buyers and sellers actually get their stocks and cash—to demand higher deposits. The trading platform eased the restrictions after furiously raising more money. “We didn’t want to stop people from buying stocks, and we certainly weren’t trying to help hedge funds,” the company said in an email to customers.

Still, it was a bad look for a company whose stated mission is to “democratize finance.” Robinhood makes options trading on smartphones easy and nudges users into setting up margin accounts so they can speculate on stock with borrowed money. The GameStop raid showed what tools like that could do. “Until GameStop, it seemed to be much harder to borrow money, speculate, and collude if you weren’t on Wall Street,” wrote Matt Stoller in his economics newsletter Big. At a key moment, Robinhood and other discount brokers realized they couldn’t really keep the playing field level.

But this rebellion was hardly a revolution. Let’s say it plainly: A lot of small investors who jump onto GameStop and the other meme stocks are going to get badly hurt. Some already have been. If you bought GameStop at its peak, you were down 73% as of Feb. 3. Honestly, buy an index fund instead—you’d have made an annual 13.5% if you held on to an S&P 500 tracker for the past decade. And be on guard against market bulls speaking the language of populists.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM BLOOMBERG BUSINESSWEEKView All

Young U.S. Jews Shift on Israel

Millennial and Gen Z progressives question American support of Israeli policies, a point of tension for the Democratic Party

4 mins read
Bloomberg Businessweek
June 14, 2021

Fever Pitch

A British tonic maker aims to conquer the U.S. with its premium mixers

4 mins read
Bloomberg Businessweek
June 14, 2021

Welcome to the Trump Coast

The former president’s strategic retreat to Mar-a-Lago has helped turn Florida into a new home base for Republicans

10+ mins read
Bloomberg Businessweek
June 14, 2021

THE SEDITION HUNTERS

Amateur sleuths pore over photos and videos online to ID Capitol rioters

6 mins read
Bloomberg Businessweek
June 14, 2021

The FOMO Economy

From AMC to Dogecoin to houses, buying seems driven as much by anxiety as by hope

7 mins read
Bloomberg Businessweek
June 14, 2021

KING OF CARDS

Sports trading cards are having a moment. And no one promotes the industry like Ken Goldin

10+ mins read
Bloomberg Businessweek
June 14, 2021

Pay Attention to the Man Behind the Curtain

Vladimir Putin’s tolerance for criminal hackers will be on the agenda when he meets with President Biden on June 16

4 mins read
Bloomberg Businessweek
June 14, 2021

It's TEQUILA O'CLOCK In NYC

Jimmy Buffett’s Margaritaville is a hit song, a chill state of mind, a billion-dollar marketing empire, and the new best worst attraction in Times Square

10+ mins read
Bloomberg Businessweek
June 14, 2021

Is Streaming the Limit for Sky?

As its content providers start online services, the broadcaster pivots to create its own shows

5 mins read
Bloomberg Businessweek
June 14, 2021

A Pop-Up Store Hits the Road

Cuyana’s store-on-a-truck is a cost-effective way to quickly test locations and products

3 mins read
Bloomberg Businessweek
June 14, 2021
RELATED STORIES

BidenBucks Is Beeple Is Bitcoin

In a system rigged by the rich, outsiders have to make their own volatility.

10+ mins read
New York magazine
April 12-25, 2021

SAFETY LAST: RISKY INVESTMENTS SOARED AT START OF 2021

Who needs safety when the world’s about to get back to normal?

4 mins read
Techlife News
Techlife News #492

STOCK TRADING APP COMPANY ROBINHOOD FILES PLAN TO GO PUBLIC

Stock trading app company Robinhood said this week that it has submitted a confidential plan to go public later this year.

1 min read
AppleMagazine
AppleMagazine #491

Did Anyone Hear a Pop?

Investors are worried that stocks are in a bubble— and that it’s going to burst.

10 mins read
Kiplinger's Personal Finance
May 2021

A Word About Short Selling: Don't

The fracas in January over a company called GameStop suddenly brought the practice of shorting stocks back into the public spotlight. GameStop sells video games via a network of thousands of retail outlets that have the anachronistic feel of Blockbuster stores. Business has soured, mainly because of online competition. GameStop scratched out a profit in fiscal 2017 (ending January 31, 2018), then lost money in the next two years and is estimated to have lost $680 million in the past 12 months.

5 mins read
Kiplinger's Personal Finance
April 2021

INVESTING ABCS: TEACHING YOUR KIDS ABOUT MONEY AND MARKETS

The recent stock market mania over the video game company GameStop, which this week was scrutinized by Congress, has provided a teachable moment for kids.

5 mins read
AppleMagazine
AppleMagazine #487

GAMESTOP'S SAGA MAY BE OVER; ITS EFFECT ON WALL STREET ISN'T

The frenzy around GameStop’s stock may have quieted down, but the outsized influence small investors had in the saga is likely to stick around.

5 mins read
AppleMagazine
AppleMagazine #486

Get the Insider Scoop at Newly Public Health-Care Companies

Last year was a good year for at least one thing: initial public offerings in the U.S. With the frenzy of listings of special purpose acquisition companies, or SPACs, IPOs raised a total of $154 billion in 2020. That total was by far the largest of the past 10 years, and more than double the total from 2019, according to data compiled by Bloomberg.

2 mins read
Bloomberg Markets
February - March 2021

IN DUEL WITH SMALL INVESTORS OVER GAMESTOP, BIG FUNDS BLINK

Across most of America, GameStop is just a place to buy a video game. On Wall Street, though, it’s become a battleground where swarms of smaller investors see themselves making an epic stand against the 1%.

5 mins read
Techlife News
Techlife News #483

Winds of change blowing through the markets

New developments may radically change the way markets have been running up to now.

3 mins read
Finweek English
4 March 2021