A Financial Revolution
The pandemic left many at home with nothing to do but learn new skills. Many people decided to take the extra time they had to ensure that they were financially secure in the case of another crisis. Now, almost a year later, millions of people are actively investing and a group called WallStreetBets is fueling the cause. WallStreetBets is a group on the forum platform Reddit. Their goal? To collectively band together and invest in particular stocks in order to reap large sums of profit. However, their bigger goal is far more calculated. The group observes the trading positions of large hedge funds and bands together to push the market in the opposite direction. According to the Federal Reserve, the top 10% wealthiest individuals and hedge funds control about 90% of the stock market so this second goal is a far cry from heaven.
However, on January 28, WallStreetBets successfully launched a campaign that generated millions in losses for hedge fund corporations. It also caused thousands of individuals to lose significant sums of money. On the other hand, this did not discourage the common man from trading. The philosophy behind the WallStreetBets moves generated widespread \”fear of missing out\” on the next big rally. This prompted millions of young people to learn about investing.
What Happened?!
Hedge funds evaluated companies like Gamestop as failing and placed short sell orders on them. A short sell order is when an investor believes a stock will fall in price so they seek to profit off by borrowing, usually from a broker-dealer, shares of a stock that they think will lose value by a set date and then selling them at the market price. In a win scenario, the price falls and the fund buys the shares at a lower price. They then pay back the money borrowed and pocket the difference. However, if it fails then funds can look to lose more money than they borrowed.
Now that everything is on the Internet, companies that rely solely on an in-person experience are declining so it makes sense why companies like Gamestop were phasing out. However, for reasons only known to its members, WallStreetBets decided to rally together and drive up the stock price of these failing companies. This is called a short squeeze. By buying shares of a company, the price of the stock will increase. This in turn \”squeezes\” out short-sellers and forces them to buy into the stock as well to cover their losses. This dramatically drives the prices up, even more, essentially eradicating selling power from the stock.
Generally speaking, Wall Street execs regard retail investors as \”dumb money.\” They are destined to lose in the high stakes game of investing. However, in the case of WallStreetBets, the everyday investor realizes that he is far more powerful within a collective. Everyone brings his or her own piece of market analysis and far more people take better investing opportunities.
The Aftermath
Spearheaded by WallStreetBets, Gamestop stocks surged over 1700% with shares going from $20 to $379 in a matter of days. This caused large hedge funds who short-sold the company to lose billions of dollars, namely Melvin Capital who lost so much money they had to ask for a $2.5 billion bailout from other hedge funds. The volatile movements moved Robinhood, a free investing platform, to place restrictions on trading Gamestop and other companies pumped by WallStreetBets. The event even caught the attention of the Securities and Exchange Commission. They issued a statement saying they were \”closely monitoring the situation\” to “protect retail investors when the facts demonstrate abusive or manipulative trading.”
The price of Gamestop peaked at $483 per share before finally making its way downward. The battle was over and while it was hard-fought, the might of Wall Street prevailed. The main factor? The billions of dollars in reserve hedge funds have for these exact situations. While the spectacle increased the finances of many retail investors, many others, who got on the hype far too late, saw massive losses. However, the philosophy that the WallStreetBets vs Wall Street siege stood for emboldened retail investors to take investing more seriously.
High profile people have also expressed their support for the \”Eat The Rich\” campaign that sparked on social media. Tesla CEO Elon Musk went to Twitter, during the height of the squeeze, stating \”Gamestonk!!\”. New York Senator Alexandria Ocastia-Cortez, in response to Robinhood restricting trades, tweeted \”This is unacceptable. We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit. As a member of the Financial Services Cmte, I’d support a hearing if necessary.\”
Looking The Future
Today, you can\’t get on any social media platform without hearing some information about investing. This type of information sharing is on a scale we have never seen before. It scares the bankers on Wall Street who make profits off the losses of the common man. I believe that as time bores on, we will see a massive insurgence of minority individuals leading lives of financial abundance. This pandemic has revealed a lot of harsh truths about the systems we have believed in for centuries. Withholding information on investing from marginalized communities created a large wealth gap. The common man utilized the Internet to start dismantling this unfair distribution of wealth and ensured that the effort will continue.