GameStop Fiasco Continues
r/wallstreetbets not the good guy; house always wins
A few days ago, the same YouTuber who alerted me to the amateur Reddit investors started a livestream titled “I Was Wrong About Stonks…,” (‘stonks’ being a popular meme referring to stocks). He began this stream by admitting he had fallen for the narrative which had been woven for the general public. He called this the “little guy sticks it to big guy” narrative.
His thought was that, during the events of the past two weeks, the public suspended its skepticism of the $GME rally because it is the kind of story we want to believe: the David and Goliath tale of everyday amateur investors taking down Wall Street. He bought it. So did I; it was just too good to pass up.
However, now that America is collectively coming off of the high of this epic rebellion, we can see with perfect hindsight just how badly we have been tricked.
Some of it was true, of course. There is a Reddit forum called r/wallstreetbets, and the initial amateur investors did originate from there. However, hedge funds such as New York-based Senvest Management also invested, contributing heavily to the inflated prices of GameStop stock.
According to Business Insider, “Senvest paid under $10 for most of its shares, and after GameStop stock peaked at more than $400, the hedge fund walked away with a $700 million profit, one of the biggest winners.”
It was a cruel narrative. Moderators on the r/wallstreetbets forum and hedge funds appeared to have wanted us to believe that it was the average Joes who were causing the prices to spike. Realistically, amateur investors do not have anywhere near that much power or control over the stock market. It’s a thrown game, owned and played by companies and investors with billions of dollars to spend and lose.
This is not to say that no one from r/wallstreetbets made money. There were definitely some initial investors who made a hefty profit. Business Insider reports that “Reddit user r/DeepF***ingValue, who has largely been credited with igniting the GameStop rally, claims to have made a $48 million profit.” However, it’s the amateur investors taken in by the too-good-to-be-true narrative who will take the brunt of the losses.
In the end, the moderators and a good number of Redditors on r/wallstreetbets are not the people’s people, so to speak. The original followers of r/wallstreetbets knew what they were getting into from the start, whereas the normal people whom this “movement” attracted did not. They bought into the online narrative and invested when GameStop stock was at $300, many of them influenced by the plucky memes and encouragement of r/wallstreetbets posters. These people thought that they were fighting the system.
However, the GameStop stock value dropped when initial investors began selling their stocks at anywhere from $300 to $400. These are the investors who made a profit. According to the New York Times, “At its highest point, GameStop’s price was $483. On Friday, the stock was worth $63.77. The trading frenzy — powered by online hype over a rebellion against traditional Wall Street powers — had created, and then destroyed, roughly $30 billion in on-paper wealth.”
This is why initial investors and moderators on r/wallstreetbets and hedge funds needed people to believe in the cause; they needed people to buy in so that they could cash out.
Now, moderators on r/wallstreetbets have begun deleting posts where people talk about their losses and ask about end-game strategies. As of Feb. 8, the forum is flooded with memes and messages telling viewers to hold on to their stock.
Content Warning – derogatory language One memed video, titled “The Last R**ard,” urges users not to sell, telling them not to be “paper-hand b**ches.” The video portrays two soldiers, badly wounded and near defeat. When the soldier symbolizing the struggling investor says that they have to sell to pay their mortgage, the other soldier symbolizing r/wallstreetbets says, “You’re a giant pu**y for selling,” and kills him. I don’t care if this seems too literal a reading. Real people have a lot at stake here, and these posts are making this out to be a joke; not to mention how manipulative this portrayal is.
The creator of this video seems to be trying to persuade tentative, struggling investors that they are soldiers in a worthy cause, revolting against the big guys at Wall Street. The moderators are deliberately cultivating the David and Goliath narrative to get people to invest, knowing that these people will lose thousands.
Some in the financial sector consider it a “pump and dump” scheme. According to Investopedia, “Pump-and-dump is a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. The perpetrators of this scheme already have an established position in the company’s stock and sell their positions after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.”
Although this is technically an illegal practice, it’s worth mentioning that, for decades, hedge funds have used this financial strategy to their advantage; r/wallstreetbets was simply taking a note from the big guys.
It is too early to tell whether this will be acknowledged as a pump-and-dump scheme, let alone if anyone will be fined. Even so, if they are fined, they’ve already made their money off of lies. Even the hedge funds that lost big are landing on their feet. Business Insider reports that “even GameStop short-seller Melvin Capital, one of the biggest losers with losses of 53% in January, eventually got a $2.8 billion bailout from other hedge funds.”
From my perspective and those of many others, this is a disappointing case. However, it is an opportunity to learn. It doesn’t seem like this would be a noteworthy point, but Elon Musk tweeted “Gamestonk!” on Jan. 26, and this is what prompted Senvest to get out when they did: when the price was high. It just goes to show what a joke Musk’s “memer” behavior is. Billionaires like Musk manipulate the market to their liking. They know what they’re doing. They are the player; they are the dealer; for that matter they own the casino, and the public’s poker face could use some work.