Reddit users outplayed Wall Street by raising GameStop shares by 700%. Investment companies lost billions of dollars

Preview Reddit & Hedge funds
/
1119 views 0 comments

The story of a grand flash mob (and an unusual community where it originated) - Elon Musk has already nicknamed him “Gamestonks". Exchanges prohibit trading, investors lose billions of dollars and complain about "manipulation", and social media accuses professional financiers of foul play.

Reddit

What happened

GameStop Is an American video games, consoles and accessories retailer that has plummeted for six consecutive years due to declining profits. Discs matter less and less in the industry: game sales are moving online, next-generation consoles have versions without a drive, and GameStop for 2020 year only closed more than 400 locations in the USA.

Shop

Company has become very popular with short-sellers on Wall Street. Investment funds were pledged to further downgrades in GameStop shares, and the trading company FactSet named the network as the leader in falling rates in the American stock market.

The more GameStop lost positions, the more hedge funds got richer. And throughout 2020, the network lived up to its forecasts: its shares fell 15% in April, 12% in May, 28% and 27% in June and July, respectively. “Hedge funds have been winning for so long that they didn’t pay attention to the powder keg they had created, which would explode if the situation reversed.” пишет Bloomberg.

How Fall Betting Works - Explanation:

The stock fall rate works by “borrowing” shares from a broker. An investor receives securities from a broker and immediately sells them, for example, at 200 rubles per share, "opening" a short position.

Then the shares become cheaper, the investor buys them up, for example, for 180 rubles, and returns them to the broker. The investor's profit is 20 rubles. With a sharp rise in shares, the investor needs to buy back the shares at an inflated price - then the investor is in the red.

They decided to change the situation by Reddit... The center is the section r / WallStreetBetswhere is the topic of shares GameStop raised all of 2020. And by December, the number of discussions had skyrocketed.

WallStreetBets Is an active community of hobby traders with nearly 3 million subscribers. Its users began to urge to massively buy up shares GameStop... The goal (in addition to making money) is to teach a lesson to the Wall Street boomers who, according to Reddit, deliberately "drowned" the company for their own benefit. The forum wrote that hedge funds underestimate the chain of stores and make incorrect predictions for its future - by January, the value of one share was estimated at 19 dollars.

It all started out as a joke, but users r / WallStreetBets really started buying shares GameStop... In their posts, amateur investors often signed the phrase YOLOYou Only Live Once ("We only live once"). It has become the unofficial slogan of the community. Gradually discussing "revival" GameStop became more and more active. And in January 2021, the same powder keg explosion occurred.

Stats

What happened next?

January 11 to GameStop Board of Directors joined Ryan Cohen, co-founder and former head of the online pet store Chewy, has strengthened the company's position. At the same time, WallStreetBets users began to actively buy up the chain's shares. In addition, he made them angry Citron Research Is one of the hedge funds they fought against.

Investment company Citron Research looking for stocks that she believes are overvalued and best suited for short selling. And the head of the firm Andrew Left in the video report call GameStop "A bankrupt mall retailer" and laughed at the online traders who raise the company's stock. IN Lemon predicted that the value would return to $ 20 (by that time, the GameStop traded at around $ 40).

«We understand this better than you", - turned to users Reddit staff Lemon... And then they tweeted about the attempts to hack the company's social media accounts, called the opponents an "angry crowd" and promised not to comment on the shares anymore. GameStop.

Against this background, investment funds, losing money, began to buy back shares at an inflated price, remaining in the red - this also influenced the jump. As a result, by January 26th, GameStop reached the $ 150 mark, and for the operation Reddit drew attention to the largest media.

The user has become a real hero of the community u / DeepFuckingValue... Back in 2019, he made YOLO-bet by purchasing shares GameStop for 50 thousand dollars. In January 2021 they turned almost in 23 million bucks.

What are the hedges?

Investment funds are expected to be unhappy. “This is a digital coordinated attack. They create problems for hedge funds by thinking it's a game. " said Howard Lindson, top manager of Social Leverage. By counting analyst firm S3 Partners, short sellers who were playing down stocks GameStophave already lost over $ 6 billion.

Michael Burry is a prominent American financier who noticed the US real estate bubble in 2008 and predicted the global financial crisis. He was portrayed by Christian Bale in the movie “Selling Short”. Financier said"What is happening now must have legal and regulatory implications. It's unnatural, insane and dangerous". Moreover, it is the purchase of shares GameStop his foundation in 2019 attracted the attention of users Reddit.

There are those who encourage surgery WallStreetBets... For example, Elon Musk, who left a link to the community and referred to a popular meme Stonks... Entrepreneur's tweet further increased the price hike GameSpot - the shares are already 230 dollars.

Elon Twitter

Who are WallStreetBets

In fact, Wall Street has long known about the community on Reddit. WallStreetBets in 2012, founded by entrepreneur Jaime Rogozinski (jartek), who lived in Mexico at the time. is he hotel organize a place where experienced investors can share advice on profitable short-term strategies.

Rogozinski admits that he is "not a fan of memes" and that he intended the section as a serious forum. But things didn't go according to plan pretty quickly. Now WallStreetBets meets newbies with the description “as if 4chan found a terminal Bloomberg". And that's pretty close to the truth. For the most part, users consider the game on the stock exchange just as a "game" - with their own passion, big risks and memes.

Subreddit mascot

Tips on WallStreetBets side by side with jokes and pictures, reports of major victories - with stories of failures. Users now have their own slang: they jokingly worship "Daddy Mask", call themselves "autistic", profit from a successful decision - "breast", and the most risky bet "all-in", which at first glance contradicts common sense, is marked as YOLO... One of these YOLO- bids and became an operation with GameStop.

In recent years, more and more ordinary users have been involved in investing and playing on the stock exchange, and this could not but affect the popularity WallStreetBets... The pandemic also affected - people were left in isolation, some were out of work - others, on the contrary, with savings that have nowhere to spend. As a result, many in the United States began to use online trading applications like Robinhood, and at the same time look for like-minded people. If in April 2020 the subreddit had just over a million subscribers, now their number has almost reached 3 million.

GameStop Is not the only company that in 2021 faced “WallStreetBets effect". Edition Wall Street Journal sees the hand of the online trader community and other businesses whose stocks jumped in the winter. Among them, for example, a network of cinemas AMC (despite US concerns over the future of movie theaters), Nokia and Chinese EV maker NIO.

At the end of January, BlackBerry shares unexpectedly jumped 30% at once, which confused financial analysts. The company even had to announce that it was unaware of any changes in its own business that would logically explain the jump.

The main thing is that it cannot be said that WallStreetBets exists only for the sake of memes. Editions like Bloomberg и Financial Times are giving the community a significant part in the "game revolution" of online trading, and Wall Street and large investors have taken for the habit of regularly opening subreddit.

In the media you can meet stories about how a user Reddit in two options transactions turned 766 dollars in 107 thousand dollars (against the background of the history of u / DeepFuckingValue, this already seems insignificant). But there are more threads with dips - and they are often much brighter. In such cases, commentators name the author of the post “degenerate"Is also part of the slang.

My parents at age 29My parents at 29: “Let's invest 10% of our income in government bonds” - “Come on”. I'm 29: "It's time to throw 60 thousand dollars of savings in one deal"

Specialists forecastthat over time the share price GameStop will return to more or less standard indicators, since the activity of Reddit does not solve the main problem of the company - its concept of selling discs with games is becoming obsolete every year. But Wall Street officials have yet to study what happened, and perhaps things will unfold differently. "They turned out to be smarter than we thought" - said famous American investor Jim Kramer.

In a business email CNN the first results of the "perfect storm" with GameStop formulated like this: “We didn't think it needed to be spoken in 2021, but Internet flash mobs are unpredictable, ruthless and merciless. Never underestimate the power of bored millennials with Robinhood accounts. ”

5 1 vote
Article rating
guest
0 comments
Intertext Reviews
View all comments