An archive of the wild events involving GameStop

Watching all of the events unfold related to GameStop (GME) has been mesmerizing.

The spectacular rise of GME’s stock price is due to a combination of brilliance, idiocy, and memes. But there is also some interesting cultural phenomenons being stirred up as a result. You can read wallstreetbets and pass the thousands of ridiculous posts and comments off as just some ultra-meta memes and jokes made by amateur investors and internet trolls, but somehow it feels like there is something more going on.

This article will serve as a catalogue of all the action and a means to reminisce about this wild ride in the future. So many factors of this story are noteworthy, so to keep things organized, I have summarized the key discussion points in the list below. If you have read to this point and have no clue what I am talking about, don’t worry, it will start to make sense as you read.

• The backstory.
• The meme.
• The finance.
• The misinformation.
• The desperation.
• The healing.
• The uniting.
• The result.
• The future.

The backstory

The beginning of everything we are watching now can be traced back to a Reddit user named u/DeepF–ingValue (DFV). A picture and name has just been released (Jan 29th, 2021), as well as a corresponding hilarious comment from a Redditor.

Way back in September 2019, DFV started sharing screenshots of a long call position he held in GameStop. Basically, he was betting on GameStops stock price to go up in the long run. A bet he was mocked for consistently. I can understand the mockery. GameStop is brick and mortar retail, retail is dying, who would buy it?

It turns out DFV had done his homework. I don’t believe he was predicting a short squeeze from the outset, but saw that the company was doing ok financially, had enough cash to cover its debts, and typically gaming retailers do well in years when next generation consoles are released (Xbox and Playstation released consoles in late 2020). DFV built his investment thesis on these principles, betting that the stock was undervalued.

Some great validation for DFV’s thesis came when Dr. Michael Burry, famous for predicting the 2008 crisis, and featured in the movie The Big Short, ended up entering into a similar position as DFV. Take a look at this article written in 2019 and spend the next few hours wishing you had seen this then!

It was only recently that users on wallstreetbets (WSB) have been catching on. DFV continued to post screenshots of his trading account, and suddenly the millions of members of WSB watched as his $55K investment in Sep 2019 was growing to $2M, $5M and higher. All the while, users were shocked that he was not exiting. In one comment, a user asked “seriously though, what is your exit strategy?” and DFV replied “What’s an exit strategy?” Other members of WSB at this point started to marvel “…at the balls on this guy.”

On Jan 27, 2021 DFV posted this screenshot:

His portfolio value can be seen on the bottom right to be almost $48 million. On Thursday Jan 28th, following Robinhood, and other brokers shutting off the ability to buy GME (more on that further on in the post), DFV’s portfolio value went down almost $15M. You can imagine the exuberance of WSB members when they once again saw the balls on this guy, as he refused to sell.

By not selling, he inspired thousands of others to hold their long positions and not panic sell, which given the absolute cliff the price fell off of around midday on Jan 28th, selling was probably on many peoples minds.

There is a great thread on twitter detailing the backstory even more, if you are interested.

The meme

A meme as defined by Merriam Webster is:

an idea, behaviour, style, or usage that spreads from person to person within a culture

Look no further than wallstreetbets on Reddit for an example.

First let’s look at some of the language, which, granted, is offensive in a lot of ways. Most users in the channel refer to themselves as “retards” or “autists” or “degenerates” who just want to get more “tendies.” Tendies are chicken nuggets, but are really used as a reference to money. (I feel like a boomer myself explaining these words, but I’m thinking long term here, if I read this in fifty years I will have no clue what tendies are supposed to mean)

The dip by the way, is when the stock price falls. Great pun seven11evan!

Pretty much all the users speak of themselves in a very self-deprecating way which is an irony to the fact that they are completely screwing over these “very smart” hedge-funds at their own game. As another example of the self-deprecation, when they refer to their wives, they always include the fact that their wives have boyfriends as well which I think is quite hilarious.

Diamond hands (as opposed to paper hands) are people who do not sell shares due to fear. They have a thesis, and stick to it.

Overall, the catchphrase of the week can be seen in the picture below.

The overarching cultural movement that people have latched on to here is that a bunch of idiots are taking down the big institutions. It’s viewed as the retail investors against the hedge-funds or the average people against the mega-rich. There is a lot of commentary around 2008 and how Wall Street gambled with peoples livelihood and almost tanked the entire world economy. Take a look at this write up for an example. People are also mad at the double standard they perceive which is that Wall Street is allowed to manipulate the market unchecked when it benefits them, but when a group of people on reddit start driving a stock price up, they are demonized for market manipulation and shut down.

In a way, WSB has come to represent the working class. The downtrodden. Those who are talked down to by Wall Street, big tech, and government. Those who are told the economy is booming, but don’t see the evidence. To them, these last couple of weeks have been a once in a lifetime opportunity to turn the tables and stick it to the man; to get payback on Wall Street for their recklessness and use that same recklessness that almost crushed the world economy in 2008 against them.

Many on wallstreetbets predict this short squeeze will be the greatest transfer of wealth from the rich to the working class we have ever seen.

Does any of this make sense? Not really. But it makes no less sense than the stock market itself sitting near record highs each day just as expiring federal unemployment benefits are pushing 8.1 million Americans into poverty and U.S. senators are balking at an enhanced stimulus package.

Alex Kirshner – Slate.com

As the situation became more public. Big names such as Mark Cuban, Dave Portnoy, JaRule, and Elon Musk (referred to occasionally as “Papa Elon” on WSB) even started sharing their support. Obviously, the members of WSB were very pleased with the shoutouts. Suddenly it wasn’t just the little guys against the establishment, there is some momentum.

The finance

If you aren’t particularly familiar with this story, everything I have said so far has probably sounded rather vague. What is actually happening here? Bear with me as I attempt to explain.

A short position is when someone borrows shares from a stock broker, and then sells them on the open market. They do this with the hope that the price of the companies stock will go down over time so that they can buy the shares again from the market for a lower price, return them to the broker, and keep the difference.

Similar to a mortgage, when you borrow shares from a broker, you pay interest. Apparently interest on borrowed shares on GME transactions was floating between 20-80%, which is a lot of interest to pay!

The big risk with shorting a stock is that the best possible value you can get for your shorts is if the stock hits $0. By contrast, a long position (holding a stock and hoping it gains) has an infinite potential to go up.

In the case of GameStop, people like DFV and Michael Burry noticed very large short positions on GameStop, over 130% of the float. (The float is the amount of shares available to be traded). So first of all, hedge funds have already borrowed more GameStop shares than are even available to buy. This is called a Naked Short, and by all accounts, should be, or is possibly already illegal. Great read on how this all works here.

So people like Burry and DFV start buying shares, which drives up the stock price. (There was also some good news for GameStop such as a prominent new board member which helped increase the price). Now, all of a sudden, firms with big short positions are no longer in the money and going into margin calls, which is when the brokers demand that they cover some of the margin they have borrowed against by returning shares. So hedge funds need to start buying shares from the market (which they intended to buy back cheap, but now are expensive) which drives the price even higher.

The idea of a short squeeze is that investors hold on to shares and don’t sell. Firms in a short position will be forced to pay very high interest on their borrowed shares, get margin calls and ultimately be forced to cover their shorts by buying more stock. The influx of buys from these hedge funds will cause the price of the share to skyrocket and “send the stock price to the moon.” A situation like this happened in 2008 with Volkswagen.

The dip in share prices before the squeeze on Volkswagen is another interesting circumstance, and is one that many are convinced we saw happen on Jan 28th and during after hours trading in previous days. In an effort to tank a stock price temporarily, hedge funds will sell back and forth with one another at lower and lower bids, which is called a short ladder. This is a way to manipulate algorithms into thinking there is a mass sell off and temporarily lower the price. The hope in doing so is to spook long investors into selling, which will drive the price down. If the price goes down, they can exit their short positions for cheaper, or best case scenario, tank the stock and be in the money again.

That’s the long and short (intended) of what has been happening these last couple of weeks. I can’t quote a specific number because I have seen so many conflicting news articles, but billions of dollars have already been wiped out of hedge funds with short positions. Melvin Capital, which was the main target of this squeeze from the beginning has already received a bailout from two other funds for 2.75 billion, and likely lost billions more in the days that followed.

Rumours spread that Melvin was able to exit its short position, but many believe that was a fake press release that was an attempt to stop people from buying and holding the stock and hopefully drive the price down.

WSB users continue to urge everyone to hold and buy the stock in dips to continue to squeeze institutions with short positions, and in turn, drive the price of their long investments up for significant profit. These shorts must be paid back, so if Melvin is not able to cover its debts, the brokers may need to cover it, and if not the brokers, then the banks. You can quickly see how this could have a deep ripple effect if the squeeze goes as intended.

The misinformation

There were lots of articles coming out over the last few days, but they started to really peak on Jan 27th.

CNBC in particular received a ton of scrutiny from the public on its reporting of WSB and its pandering to hedge funds. As the hype began to peak, suddenly WSB was getting shut down. The community moved to Discord, which was also shut down due to “hate speech.” Here’s an audio clip of what the Discord server sounded like. Tell me if you can make out any hate speech in this anarchy?

Suddenly articles were being released that WSB was made up of hateful Nazi’s and was connected to the alt right?

Worst of all, these amateur investors were maliciously manipulating a stock for their own gain and the media was sure to report it. Can you imagine the nerve of these lone individuals buying a stock in the “free market” fully aware of the risks involved? Let’s make no mention of hedge funds use of naked shorts holding >100% of GME’s float, or using short ladders, or releasing negative press on the company, or even shutting down investors ability to buy (more on that soon) all in efforts to manipulate a stock price.

Meanwhile, politicians are starting to take notice and making vague and uninformed statements such as this one made by Elizabeth Warren:

“With stocks soaring while millions are out of work and struggling to pay bills, it’s not news that the stock market doesn’t reflect our actual economy. For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price. It’s long past time for the SEC and other financial regulators to wake up and do their jobs – and with a new administration and Democrats running Congress, I intend to make sure they do.”

Many people were confused by her statement. Whose side is she on?

But on Jan 28th, after the outrage started happening around the actions of Robinhood and some other trading patforms (next section), suddenly it started to look like a good idea to side with the civilians. CNBC started back-pedalling on comments it made supporting freezes on stock buying for these individuals, and claimed it never suggested that.

Discord is now allowing WSB on its servers again, I guess everyone promised not to say any more hate speech? And WSB is alive and active again.

Things change fast.

Rabbit trail for a second. It seems like so often convictions are just a proxy for popular or influential opinion. If my life is spent trying to maximize the number of people who like and agree with me, I’ll probably arrive at my deathbed having taken no risks, made no impact, and coasted my way through life. I digress.

I won’t pretend the misinformation was one-sided.

There was a screenshot released that claimed to be a low level employee of Robinhood, stating that they heard there was a secret meeting between Robinhood and the White House asking them to shut down buying of GME. I suppose there is a possibility this is true, but we shouldn’t be naive and believe everything we read.

I also saw a number of comments made by people in WSB that they are selling their car, or taking their rent to buy more shares. Maybe true in some cases, though it feels embellished. We can’t deny that it would be beneficial for individuals to convince others to buy and hold, driving the price up so they can exit their long positions with huge profits.

Prisoners dilemma is evident. If everyone works together and buys/holds, it is likely that the stock price could spike even more. However, it is more beneficial for an individual act in their best interest and convince everyone else to buy/hold which drives the price up. The individual acting in their best interest will want to sell before everyone else does, as a mass sell off will tank the price. So we sit with this fine balance of the collective interest of screwing the rich, and wanting to profit personally. There will be a lot of people on the retail investor side who bought in late, and will sell late, ultimately losing a lot of money. The market is unforgiving.

The desperation

I woke up on Jan 28th and basically sprinted to my phone to check GME’s stock price and read the chatter related to it. First thing I noticed was a lot of confusion as many people were saying they weren’t able to buy GME shares, but were still able to sell. It became evident quickly, and was confirmed by press releases, that Robinhood, and several other trading platforms had disallowed buying shares of GME.

The main reason quoted at the beginning of the day as to why trading platforms had shut off buying was to “protect” retail investors from highly volatile stocks.

The public was NOT pleased with this response.

I can confirm the “suck my nuts robinhood” banner is real. Here is a link to the video of the plane flying.

I do believe the publics outrage is justified for a few reasons.

First, we are told we live in a free market. Individuals should be able to enter into trades no matter how risky others perceive them to be. It is their money, and their right to spend it.

Second, the justification that it was “protecting” investors was met with rage because everyone expected GME shares to skyrocket, meaning if they can not buy more, they are being robbed of potential profits.

Third, the fact that selling remained available was seen as an obvious ploy to panic investors into selling, which would drive the stock price back down.

The nail in the coffin? Citadel Hedge fund (One of Robinhoods biggest customers) was one of the two other firms who bailed out Melvin Capital from their losses on GME shorts in exchange for an ownership stake in Melvin. So it appears that Citadel has a vested interest in seeing GME’s stock price fall.

There was also a tweet made by Justin Kan, cofounder of Twitch saying he received a tip that Citadel reloaded their shorts prior to having Robinhood shut off trading of GME. The implications of this are immense. Not only are they desperately trying to tank the price to avoid losing billions, now they are adding even more shorts to profit off of the inevitable fall in stock price that will occur when buying is shut off. I will say that I haven’t found any concrete evidence that Citadel did this. A tweet saying someone received a tip is hardly proof. But you can imagine the fuel this would have added to the rage online.

In the wake of the Robinhood news, the stock price plunged down ~50% during regular trading hours. Many people speculate that funds covered their short positions during this dip, still taking losses sure, but potentially bypassing the crippling blow a true short squeeze would have had. This may be true, as the stock price did shoot right back up after hours, possibly signalling they covered, but again, I can’t confirm at this point. Trading stayed relatively flat all day on the 29th.

The next morning, Robinhood released a blog post explaining their decision and stating they will be re-opening trading. They said their decision to stop trading “was not made on the direction of the market makers we route to.” Instead, the reasons are said to be from SEC regulations related to net capital obligations. As a broker, they are required to hold capital reserves and with the influx of activity, its very reasonable to assume they were running low on reserve. It is a bit telling though that their reason for the shutdown the day before was to protect investors, and when that narrative blew back in their face, the reason changed to SEC regulations.

I do agree that their decision seemed to be terrible timing, and very convenient for hedge funds, especially considering close ties with companies like Melvin and Citadel. I can’t say with certainty that their decision was malicious no matter how overt the evidence against them seems to be. I think Robinhood likely had some regulatory pressure, the question is whether that was the key motivator for their decision or not. I’m hopeful we will have more insight into what went on behind the scenes as many class action lawsuits were filed within hours of the news breaking.

You’ve got to love capitalism! I can imagine hundreds of lawyers scrambling to file potentially career defining, and extremely lucrative class actions the moment they read the news.

A contextual note on Robinhood. Prior to the 28th, they were the platform of choice for WSB users. The platform has no fees and a clean, easy to use interface for traders. They get away with not charging fees by selling users information to hedge funds, such as Citadel.

Robinhood was actually on the path to IPO. After all the negative press, I’d say that is unlikely to happen.

The healing

One theme I saw emerge on the 28th as the news about Robinhood was in full force was the idea that this event has “healed the political divide.”

Senator Alexandria Ocasio-Cortez wrote the following tweet in response to the Robinhood debacle:

And none other than Ted Cruz shared her tweet, agreed with her, and offered his support. You could say that this particular pair of humans don’t typically see things eye to eye.

We also saw tweets from Donald Trump Jr. and other characters associated with far lefts or far rights, sharing their opinions and outrage with Robinhood.

After a turbulent few years of rocky partisan relations, it feels like a breath of fresh air to have some unity on something.

Another slight rabbit trail. I had the thought that the “political divide” is probably not as divided as most of us think. Sure there are a few of the hot button issues that divide people, but if we step out of the weeds on those issues, I bet we can find a lot of common ground.

The uniting

One of the more heartwarming moments of this last week has been watching people support each other.

When the news broke about Robinhood, a Reddit thread was posted that quickly gained a TON of popularity. Take a look at the representation from all across the world. The thread has almost 24,000 parent-level comments as of Jan 30th, 2021, not including threaded comments. (By the way, I’m fully aware that many posters may not actually be helping by buying shares even if they say they are, but I still found the sentiment nice).

Here is a link to the thread if you’d like some laughs, or some warmth for your cold heart 🙂

The result

This doesn’t appear to be over yet. The sentiment on Reddit is that everyone is still holding. Most of the consensus seems to be holding until $1000. Although many would like to hold until 69,420, I won’t speculate on why.

A lot of people expected Friday Jan 29th to be the squeeze. There was some false impressions that the shorts had to be covered by then, but that is untrue. What I interpret to be happening now is a sort of standoff. Hedge funds are holding, attempting to discredit and demotivate WSB, and continue to try to drive the price down. All the while, they are paying high interest on their positions. Meanwhile, WSB users are holding. If many of the users are to believed, and they put their rent money and food money into GME, there may come a time in the near future when they are forced to sell.

I truly hope this comment is a joke:

Over the next few days, it’s possible the price will remain flat as everyone holds through this standoff. WSB will need to work hard to make sure it doesn’t have a slow drip of people selling, which will drive the price down. Hedge funds will need to hope they have the liquidity to cover what is necessary and to continue to pay interest.

I will continue to follow the story closely.

The future

I’m curious of the precedent this has set for the future. I certainly think hedge funds will approach short positions a lot more carefully. Perhaps we are seeing the beginning of a new, decentralized hedge fund known as wallstreetbets. A community large enough that if they band together, have the power to pump a stock significantly.

You can bet regulators will have their stubby little fingers all over the events of this last week as well.

It is a bit scary to see how volatile a stock can become as it becomes completely disconnected from fundamentals. GameStop’s price has’t risen and fallen like it has in the last week because of exceptional or poor revenue reports.

Conclusion

What a ride this has been, and it’s not over. I’d like to say that there has been a firehose of information coming out of this, and its very possible I have missed or misstated important details, I welcome any corrections.

Cristopher Nolan, if you read this, please make a movie about this. You are the only director that matters. I love you.

Expect an update from me in the coming weeks as hopefully more of the truth behind all of this is revealed.

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