I’ll be honest, this month was already going to be the longest one I’ve ever experienced even if nothing happened this past week. Januaries always seem to be about 87 days long to me with the post holiday letdown, the New Year’s resolution readjustment (uh oh. Ok, I’ll start exercising daily on Chinese New Year) and the wintry weather (snow is nice on Christmas day. Other than that, it’s just rude). I also, perhaps stupidly, decided I would do a “dry January” this year and, even more stupidly, have actually stuck to that.
So I really didn’t need this last week of this already ludicrously long month to drag me down the wormhole of video game stores, hedge funds, and internet investment group forums. But here we are.
I’m talking of course about the “Gamestop” stock phenomenon where a group of individual investors on a “Reddit subreddit” called “r/wallstreetbets” drove up a stock price by several hundred percent and increased a market cap from $1billion to over $24billion, causing billions of dollars in losses for Wall Street Hedge Funds who had “shorted” it.” Now, of the terms I just used there, let me tell you which ones I just typed into Google searches for the first time in my life this week: ‘Gamestop’, ‘Reddit’, ‘subreddit’, ‘wallstreetbets’, ‘shorted’ and, yes, ‘Hedge Fund’.
This story has revealed a whole new world of predatory investing focused on taking down the old world of predatory investing which is fascinating from the perspective of someone who is firmly ensconced in, by comparison, very non-predatory investing. It’s like when a bunch of drunk guys get in a fight at a bar and, since they seem pretty evenly matched, you just make sure your nachos aren’t in the way, find a nice seat and enjoy the show.
I mean I’ve always known that hedge funds were an aggressive way to invest and typically involved men who appeared to spend a good portion of their fortunes on hair gel, but I didn’t quite understand that they were profiting off of struggling companies, essentially exploiting their failures, possibly to the point of oblivion.
Similarly I didn’t know that Reddit, which bills itself as “the front page of the internet” was powerful enough to take down a Wall Street hedge fund. Mostly because the slogan “the front page of the internet” seems like it was written by someone who really doesn’t understand how the internet works.
But I was wrong to not know at least a little more about both of these worlds.
With new technologies in place and an abundance of people with an abundance of time on their hands each day due to the pandemic, individual online investing has grown more exponentially over the past year than, well, than Gamestop stocks did last week! There are many online communities openly sharing information and if you are willing to put in the time for research there is no reason that you can’t become an informed investor and in many cases be more informed than those who are currently being paid good money to inform casual, uninformed investors, like me.
Investment “experts” will argue against this. But that’s because they want you to pay them instead of yourself. In a similar way, one of the hedge funds that lost billions of dollars in the Gamestop story this week, Melvin Capital, is very angry that they were manipulated by the individual investors on Reddit. But only because they are used to being the ones doing the manipulating for their own personal gain. And honestly, it’s difficult to be worried about someone named “Melvin” being angry with you.
The subreddit group at the middle of all this, r/wallstreetbets is self-described as “Like 4chan found a Bloomberg terminal”, which is the second most confusing slogan I’ve read this week. It’s an aggressive investing site populated mostly by males aged 20 to 35 that encourage each other to spend their life savings on individual trades, often on “options” where they essentially bet that a stock will go up to a certain amount in a certain amount of time. If it does, they can make lots of money. If it doesn’t, they lose their entire investment.
This time though, wallstreetbets (WSB for short) worked together and essentially formed their own anti-Hedge Fund where they identified a company that was being shorted and performed a “short squeeze” by buying up that company’s stock and driving up the price. It was like David slayed Goliath only in this case it was a bunch of David’s, with names like “Fage 138” and “Deep F—ing pockets” and the Goliath was a Hedge Fund, named Melvin.
So, in conclusion, an online community that is “like 4chan found a Bloomberg terminal” that is a subgroup of the “front page of the internet” took down a hedge fund that was trying to take down a video game company and the entire investing world is wondering what this means. Are Hedge Funds now legitimate targets of individual investors? Are these predatory individual investors, really, any better than the Hedge Funds themselves? Has online investing truly become, like many twenty and thirty something male investors are describing it “like a video game, with just a bunch of flashing numbers on a screen”? And maybe most importantly, can I take advantage of all of this by boning up on Space Invaders on my old Atari game console (likely available at a local Gamestop store).
I honestly don’t know. But I do begrudgingly realize that it’s time to do more online investment research myself. Not to try to get rich quick, but simply to not be at the whim of Hedge Funds managers, Wallstreetbets bros or investment advisors with the same amount of information at their disposal and time on their hands as me.
See what I mean by a long month? I need a drink.