Wall Street vs Reddit: The rise of Memetic investing


Over the past few years, Gamestop had been struggling to the delight of gamers who believe that the shop rips them off when buying second-hand games. Then the pandemic happened.

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Image by Keith C, Wikimedia Commons

By Hashaam Yaqoob

Gamestop was in a vulnerable and fragile state, the perfect target for "Short selling" by Hedgefund managers who often prey on struggling and failing businesses. "Short selling" is when an investor believes that a company's share is overvalued. An investor will "borrow" a stock usually for a fee, sell it, and when the price drops buy and give it back to the owner and pocket the difference. Gamestop was virtually on the road to bankruptcy, a “free fall" in terms of value. Therefore it was inevitable that their stock would continue to depreciate. Unless a rag-tag team of "meme investors" were to say jack up the price, instead of letting it fall.

R/Wallstreetbets is a small community on Reddit created in 2012. The subreddit is often self-described as "autists" and follows a "YOLO" approach to buying whatever they deem to be crucial, which "pharma bro" Martin Shkreli (who was a moderator at the time and is now serving seven years in prison.) blocked the use of the word in 2016, exclaiming that such a "Gambler mentality" was never seen in Wall Street. Earlier this month, some users began noticing that their beloved games retailer, Gamestop, was trading low, which seemed rather odd for a well-known company in the states. Some Redditors came up with the idea that investing in this may have more credit than people expect. This idea had the novelty that if more people invested then the stock would shoot up in price, forcing those who were short-selling it to buy the stock before they lost too much money. This form of market manipulation is called a squeeze, practised a lot by millionaire hedge fund managers. So in early January when the stock market was generating random numbers, a team of inexperienced,  libertarian-minded traders came and ruined everyone's day.

According to subreddit stats, millions of users have flocked to the sub this week, afterword reached the news media that the subreddit has popped the valuations of Gamestop stocks. Last week their shares were worth $40, now due to the purchasing efforts of R/Wallstreetbets, their share prices have ballooned to $492. But what started as a convenient way for some average citizens to make some money has now turned into a struggle against wall street hedge fund managers themselves. With many on the thread encouraging each other to "HOLD THE LINE." And to continue to purchase stocks if they can so the stocks’ prices soar astronomically, as a simple middle finger to Wall Street.

Many people are understandably furious at the attempt at market manipulation. But others are quick to point out the hypocrisy of it all. On 27 January, Discord had shut down the servers of popular trading apps such as "Robin Hood" and stopped the trading of GME stocks, to prevent the price of the shares rising any higher. The irony of an app named "Robin Hood" complying with growing pressures has not been lost on people, with both people from the left and the right condemning the app's actions.

The incident's effect has also brought up feelings of class restlessness with many on the subreddit and the internet claiming this to be a class war. This view has even been adopted by some media pundits online. But it's important to know that this was a recent development. This truly is a battleground between amateur stock market spectators vs Hedge Fund managers. This was started by people of means, with the most successful investors being early Redditors who wanted to shoot up the prices for the meme's sake. Investing £50,000 into GME shares, thus ballooning the price up extravagantly. Once word got wind, many regular people started joining in, with claims of people such as single mothers, college students, and people on minimum wage being able to pay off their medical bills, school debt. According to the New York Times, a teenager  managed to make $15,000 using his brother's trading app. This may be the largest transfer of wealth from Wall Street to everyday citizens,  ever seen. But the bubble will burst very soon. Members of the subreddit have continued to egg each other on to drive up the price. Many people with little knowledge of the stock market will buy into this as a quick get rich scheme to escape poverty. Many people will be hurt, by the constant pressures to "Hold the line." But this thought process is only valid for people who can lose money for the simple "F*** you" to Wall Street and not the average person who is most likely living pay-check to pay-check, who are being tricked into buying stocks at this time.

The Wall Street versus Reddit saga has definitely shaken the foundations of how Wall Street operates. The subreddit is now turning their attention towards other companies like Gamestop, which are often the target of short-selling. Hedge fund managers are now being called into questions in terms of how they operate. Despite some of the negative consequences, in general, this seems to be proving to be a powerful act of protest against Wall Street, even more so than the Occupy Wall Street movement.