Don’t mess with nostalgic Millennials who have money to spend and a score to settle.
Gabe Plotkin made that mistake and it cost him billions of dollars. Plotkin’s hedge fund had shorted GameStop, banking on the struggling bricks and mortar mall retailer going the way of Blockbuster.
But Millennials had spent their formative years buying new and used videogames at GameStop. Now they were stuck at home with their COVID stimulus cheques playing a new game with the Robinhood stock trading app on their smartphones while getting investment advice from the meme-filled WallStreetBets group on Reddit.
Millennials also remembered how Wall Street got bailed out while their parents and the rest of Main Street were hammered and abandoned during the 2008 financial crisis.
So these ragtag retail investors banded together to save GameStop, take down one of Wall Street’s biggest hedge funds and put Wall Street on notice. Shares that once traded below $5 in mid-2020 and under $20 in December 2020 had shot up to $347.51 in late January 2021, putting the squeeze on short sellers who’d expected the stock to tank. Plotkin’s hedge fund suffered a 53 per cent loss that month.
Ben Mezrich called what happened with Gamestop GME the first shot in a revolution that threatens to upend the financial establishment.
“The battle that drove up the price of a single share of GameStop to a premarket high of $500 had origins that dated back to Occupy Wall Street and beyond, when anger toward big banks and the havoc wreaked in the last economic meltdown bubbled up into largely impotent protests and sit-ins,” Mezrich writes in his latest book The Antisocial Network.
“At the same time, the rise of GME could also be seen as the culmination of a populist movement that began with the intersection of social media and the growth of simplified, democratizing, financial portals – tech that weakened the old-world pillars propping up the financial establishment.”
Mezrich chronicles the revolution by reporting on a 34-year-old who calls himself Roaring Kitty, livestreams trading strategies for hours on end from his basement and became an overnight multimillionaire thanks to his shares in GameStop. Other shareholders who went along for the ride include a 22-year-old college student, a nurse and a mom-to-be working at a hair salon.
Elon Musk also makes an appearance in Mezrich’s book. Like the retail traders rallying to save GameStop, Musk had a score to settle with short sellers who’d taken aim at Tesla. “Like his ideological siblings on the WallStreetBets board, Elon had taken the battle personally and hadn’t merely been angry at the short sellers, but apparently had been disgusted by the Wall Street practice of betting on the failure of others.” Musk’s single “Gamestonk!!” tweet to his 42 million followers drove GameStock’s share price even higher.
The short squeeze ended when Robinhood halted buying because it couldn’t put up $3.7 billion to cover capital requirements for the volume of trades going through their brokerage account.
GameStop has since brought in new leadership and announced plans to become a technology company, with a marketplace for non-fungible tokens.
“Does it really matter what GameStop management does?” writes Mezrich. “Will the company’s fundamentals – any company’s fundamentals – have any bearing on its stock price in the world we are moving toward, where a group of amateurs on social media can move markets? Where a well-constructed tweet, or a particularly humorous meme, or an inspiring YOLO post can shift billions of dollars into a company’s valuation?”.
Two of Mezrich’s previous bestselling books – The Accidental Billionaires and Bringing Down the House – were made into movies. Bank on an AntiSocial Network also being adapted for the big or small screen. It’s a business story that proves truth is stranger than fiction.
Jay Robb serves as communications manager for McMaster University’s Faculty of Science, lives in Hamilton and reviews business books for the Hamilton Spectator.