GameStop feels like more than a trade
The GameStop frenzy is messy, speculative, and probably dangerous for some people. It also feels like retail investors discovering that, collectively, they can matter.
My partner was the one who first brought GameStop to my attention. I was already an avid Reddit user, but I had mostly avoided WallStreetBets. The culture never really appealed to me, so this particular corner of Reddit was not somewhere I spent much time.
At first, the GameStop story sounded like another weird thing happening in a subreddit I had deliberately ignored. A struggling video game retailer had attracted a group of extremely enthusiastic retail investors. The stock was heavily shorted. People on WallStreetBets realized that enough buying pressure could force short sellers to buy shares to cover their positions, which could push the price up further.
Then it stopped being a niche internet story very quickly. GameStop closed yesterday at $347.51 after trading below $20 earlier this month. Today it briefly traded as high as $483.
The numbers are absurd. But I think reducing this to "a bunch of people on Reddit are gambling on a meme stock" misses why the whole thing has become so emotionally charged. It feels a little like retail investors discovering collective action.
Small investors usually do not get to feel powerful
An individual retail investor is basically irrelevant to the market. You can buy ten shares of something. A hedge fund can move hundreds of millions of dollars.
They have analysts, data, infrastructure, prime brokers, access to management, and the ability to take positions that an ordinary person could never replicate. The asymmetry is so normal that most of us barely think about it.
GameStop has made that asymmetry temporarily feel less fixed. A huge number of small investors coordinating loosely through the internet can create something that starts to resemble institutional scale.
No single person needs to have much capital. The coordination is the capital. That is the part I find interesting.
I do not think this is a coherent political movement
There is a temptation to turn the story into something cleaner than it is. Retail investors versus Wall Street.
Ordinary people versus hedge funds. David versus Goliath.
There is definitely some of that sentiment in the conversation. People are openly celebrating the losses of funds that shorted GameStop. The language on Reddit is frequently about making institutions pay, not just making money.
But people are also there because they think the stock will go up. Some are there for the short squeeze.
Some are gambling. Some are participating because it is funny.
Some appear to have developed an almost sincere affection for GameStop simply because everyone else thinks the company should fail. It is probably all of those things at once.
That does not make the protest element fake. Most collective behavior is messier than the story we eventually tell about it.
The internet has made retail investors into a different kind of market participant
Retail participation has been growing throughout the pandemic. People are at home. Trading is free. Apps make buying stock incredibly easy. Social networks make it possible for millions of people to discuss the same trade in real time.
Reuters reported this week that retail investors went from roughly 15% of U.S. equity order flow in 2019 to nearly 20% in 2020.
That is not enough to make retail dominant. It is enough to make it consequential.
And social coordination changes what those individual investors can do. Traditionally, a hedge fund could look at retail investors as millions of disconnected people making tiny decisions.
WallStreetBets turns some portion of those people into a crowd looking at the same thing at the same time. The crowd is chaotic, but it is not necessarily powerless.
Today's trading restrictions made the story much bigger
This morning Robinhood and several other brokerages restricted purchases of GameStop and some other heavily traded stocks. People could sell positions they already owned but, in some cases, could not continue buying.
That was gasoline on the existing anger. The immediate interpretation online has been that retail investors were allowed to play until they started winning against institutions, at which point somebody changed the rules.
I think that explanation is probably too simple. Brokerages have capital and clearing requirements that become much more difficult to manage when volatility explodes. There are boring market-structure reasons a broker can run into trouble here that have nothing to do with a hedge fund calling Robinhood and asking it to rescue them.
But the mechanics may not matter much to how this feels. If your entire pitch is democratizing access to markets, then disabling one side of the trade at the precise moment your customers feel like they have discovered some power is going to create a legitimacy problem. The technical explanation can be correct and still fail to address the emotional one.
That does not mean retail investors automatically win
This is still speculation. A stock can be part of an interesting social phenomenon and also be trading at a price disconnected from the underlying business.
Those things are not mutually exclusive. There will almost certainly be people who buy because they think they are participating in a movement and discover that somebody else bought much earlier and is perfectly happy to sell to them.
A crowd can punish a short seller. It can also create new winners and losers inside the crowd.
And professional investors are not all sitting neatly on the opposite side. Plenty of sophisticated traders can make money from the same volatility.
I would be very careful about turning "retail investors can move markets" into "retail investors cannot lose." Those are completely different claims.
But I think something changed
I do not know whether GameStop stays at these prices. I do not know whether WallStreetBets remains this influential once people are no longer stuck at home, markets are less euphoric, and everyone has something else to talk about.
But I think we have learned something that is difficult to unlearn. Internet communities can coordinate economic behavior at a scale that used to belong mostly to institutions.
That is true even if the coordination is happening through memes, profanity, screenshots, and rocket emojis. Maybe GameStop is not really a revolution.
Maybe it is just the first time a lot of people have seen what networked retail investors look like when they realize they are networked. That still feels like more than a trade. And I am glad my partner pointed me toward the story before it escaped a part of Reddit I was never going to discover it through myself and became impossible to miss.