Usually, I try to develop catchy introductions for my articles, to hopefully try and convince you to read the blog post. But, today, I can’t come up with anything that has more of an impact that these 4 words:
I LOVE THIS STORY.
To summarise what has occurred in the last week, a chain of video game shops in the US known as GameStop and listed on the New York Stock Exchange as GME has seen their stock surging due to many people on the platform Reddit, promoting the share.
Now, let’s break it down, into the incredible pieces of this story.
Firstly, how did this begin?
The sub-reddit page titled WallStreetBets is where users post their stock holdings and talk about their trades. A year ago, a user by the acronym of DFV posted a screenshot of a $50,000 investment in the stock. However, as the stock slowly began to rise, and DFV continued to post about his increasing profit, the stock price rose dramatically, driven by other users wanting a piece of the action. DFV’s initial investment of $50,000 is now worth over $47 million.
The stock has risen over 1500% in the past month and defies every law and principle in economic and day trading history. Many see this as a miracle, but when you delve into the subreddit, you begin to get a sense of the community that the subreddit has been built upon. The encouragement, enthusiasm and teamwork presented in every single post on the Reddit is a beautiful sight to see.
Secondly, what are the other motives at play?
Well, what made GameStop an even more enticing stock for many people was that many of Wall Street’s institutional investors had been betting that the stock would go down. This is called ‘shorting’ and means that if you believe a company’s shares will decrease substantially, you can place a bet on its declining fortunes. I won’t go any further on the economics of shorting, because I’ll probably get some things wrong.
However, what this meant, is that when Redditors discovered that some big Wall Street hedge funds were trying to bet on GameStop’s falling share price, they bought heaps of the shares to drive up its value, and burn the hedge fund traders. This led to the ‘short-sellers’ being squeezed and forced them to buy more shares to mitigate their losses, driving the share price even higher.
So, where to from here?
The most important thing is to acknowledge how a group of people on Reddit have baffled people worldwide. Investors are trying to find answers and stop this method from working again, and the bubble will burst eventually. But, until then, the kids will keep on winning, and be able to break through the financial burdens that stop the progress of so many youth around the world.
Everyone loves stories of the small rebel group overcoming the establishment. Or the amateur beating the professional. These are stories of hope, courage and commitment as unknown people work together to achieve a common goal. To achieve success for everyone. And to overcome the numerous hurdles that try to stop them.
I love this story because it sets the tone for 2021. This year won’t be easy, but if we all work together and maintain the hope, courage and commitment that has sustained r/WallStreetBets, we can all reap the success of our work, together.
The only difference, we control the bubble.