Gamestonk: Buying stocks for the lulz (and the cash) (Update)

John Sexton 1:10 PM | January 28, 2021

You’ve probably heard that something is going on with GameStop this week and also with AMC Theaters. It’s a social media phenomenon which is also making some people a lot of money. Here’s what’s happening.

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A group of small time investors on Reddit decided they were going to buy up shares and options of a few stocks which have not been doing well lately. GameStop runs a chain of retail stores which sell new and used video games. We used to have four GameStop stores in my town. Now we’re down to two. The company has been on a downward slide and investors have been shorting the stock, i.e. selling shares they don’t own at the market price and predicting they’ll be able to cover their position later at a lower price. Basically it’s a bet that the price of a stock is going to continue to drop.

But the Reddit investors get people enthusiastic about bidding up the price and thereby forcing all of those short sellers, many of whom are big time institution investors, to lose money (because they’re forced to actually buy the shares they already sold at a higher price). The same group of buyers have been doing the same with shares for AMC Theaters, which have taken a beating in the pandemic, and Blackberry. The total losses for the big investors are now in the billions:

The newbie investors are gathering on platforms such as Reddit, Discord, Facebook and Twitter. They are encouraging each other to pile into stocks, bragging about their gains and, at times, intentionally banding together to intensify losses among professional traders, who protest that social-media hordes are conspiring to move stock prices…

The mammoth gains have forced money managers to dump bets that the stocks would fall, magnifying the rally. Bearish investors who took short positions have lost $23.6 billion this year through the close of trading Wednesday on GameStop alone, according to financial analytics company S3 Partners, including $14.3 billion on Wednesday when the stock price jumped 135%, its largest percentage increase in history, to a record $347.51.

On Wednesday, GameStop shares hit a high of $380, briefly giving the videogame retailer a market value of $26.5 billion—more than that of Delta Air Lines Inc.

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All of this trading really took off Tuesday when Elon Musk linked to the Reddit site that has been promoting the stocks:

While the big investors are losing their shirts, lots of small investors are making what seems to them to be a lot of money. At the same time there’s a Robin Hood vibe to the whole thing:

The tribal framing online, as a kind of team sport pitting plucky upstarts against well-heeled Wall Streeters, has been especially helpful in motivating more investors to participate. This week, Tesla’s chief executive, Elon Musk, fueled the trading by posting about the Reddit page on Twitter. And speculation is growing that other investors are seeing fresh opportunities to push the stock even higher.

Ben Patte, 16, a high school student in Wisconsin who said he made $750 off GameStop stock, said the campaign felt like vindication for himself and fellow young traders. “It’s a good opportunity to make money and stick it to the hedge funds,” he said. “By buying GameStop, it’s kind of like beating them at their own game.”…

Justin Speak, 27, an evangelical pastor in California, and his wife, who recently left her job to raise their children, have made $1,700 off GameStop in the past week…

“There’s a catharsis to actually making money off their pain a little bit,” he said of his modest earnings from GameStop. His wife put it more bluntly: “Eat the rich.”

If they want to “eat the rich” by swarming the stock market, um, go for it. In addition to making some money, this whole thing has resulted in some amusing memes:

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Even Wonder Woman is enjoying this:

However as of this morning, many small investors won’t be able to keep buying because Robinhood Markets and TD Ameritrade both restricted trading in these particular stocks:

In a statement, Robinhood said it was restricting these stocks, including GameStop and AMC, to closing only:

In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG. We also raised margin requirements for certain securities.

Many noted the irony:

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Robinhood has already been hit with a class action lawsuit over the shutdown:

The lawsuit, filed in the Southern District of New York on Thursday, alleges that the app “purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise, thereby deprived [sic] retail investors of the ability to invest in the open-market and manipulating the open-market.”

This whole situation also got the attention of someone you wouldn’t normally think would care about people’s ability to make money in the stock market:

But it’s not just AOC who thinks it’s unacceptable:

Another person who wound up on the same side as AOC: Donald Trump Jr.

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Trump Jr. acknowledged that it was odd to find himself on the same side as AOC:

So there you have it. This decidedly quirky attempt to move markets has resulted in memes, money, locked accounts, lawsuits and people on the right and left suddenly agreeing with each other. And it’s only Thursday.

Update: Tyler Winklevoss is on the side of redditors.

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Mark Cuban seems to agree with Donald Trump Jr.: “How is this any different than what every brokerage firm does?”

Update: Charles Payne sums it up pretty well.

Tags: STOCK MARKET SENATOR TED CRUZ REP ALEXANDRIA OCASIO-CORTEZ

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