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.
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