A Game-Stop Story
This story is meant to be a follow up to my good friend Brandon’s informative piece on GameStop from Issue 8. I’ve been following this saga from the very beginning and am very much in the camp of the retail investor, so take what I’m going to say with a grain of salt. With that being said, what has happened with $GME is, and I don’t put this lightly, one of the most disgusting things I have ever been a part of.
Look, I’m not here to try to shill that GameStop had new and improved fundamentals that justified its meteoric rise into the mid hundreds. Anyone who tries to push that narrative is likely a Reddit troll trying to undermine what actually happened. It should be abundantly clear that this was never a long-term play, but it was definitely a play worth making. Let’s back up to the start.
When I say GameStop, what do you think of? Probably that store in the mall near the food court that sold video games for $80 plus tax but offered you $2.25 in store credit if you offered to trade in that exact same game. The gaming industry is booming, but GameStop’s business model was quickly becoming obsolete. With the huge increase in the digital market for purchasing games, the store’s days were numbered. This was the reasoning of huge hedge funds and institutional investors, who put billions of dollars into shorting the stock. By shorting the stock, these funds were betting that the stock price would go down and they would make money if this were the case.
Unfortunately for these poor, poor hedge funds, retail investors on Reddit began to catch wind that 140% of the available shares of GameStop were being shorted. Yes, 140%. But Luke, if 100% represents all available shares of a company, how on earth did these institutional investors manage to short 140%? What gives? Well, without getting too into the weeds, this practice is known as “naked shorting” and is inherently illegal. Essentially, big hedge funds are short selling shares that have not been confirmed to exist. When I learned about this, it seemed like only a matter of time before it went wrong. If the 2008 crash was the nuclear bomb, this must have at least been a missile.
As Redditors on the subreddit WallStreetBets learned about this, they swarmed like crazy by buying up shares to force the shorts to close their position and thus rocket the price to the moon. This occurrence is known as a “short squeeze.” On January 4 of this year, the price was at $17.25, already up 400% from that point last year. But we were just getting started. 24 days later, the price rose to over $400 and showed no signs of stopping. At that point, it should have been obvious that hedge funds weren’t going to willingly lose billions of dollars. What I didn’t expect were the debatably illegal lengths these funds would go to manipulate the stock. How naïve I was.
There were an incredible amount of tactics used by these institutional investors to manipulate the market into thinking that GameStop wasn’t the best play anymore. Bots swarmed the subreddit to shill other investment opportunities and to sell GameStop immediately. Some of you may have seen the media reporting on Redditors flocking to the commodity silver, the next guaranteed short squeeze! This was a planted story to push the hype away from GameStop and kill any possibility of a real short squeeze. Big media outlets like CNN, CNBC, Barrons, and Bloomberg continued pushing fake news (sorry, I had to use the term) to drive the price down. However, all of this was nothing compared to what has to be the most despicable thing I’ve ever seen from Wall Street. You know, the Wall Street that promotes free trade and capitalism!
Several major stockbrokers like Robinhood and WeBull, without telling anyone, restricted trading to retail investors to “protect them from volatility.” Robinhood is a broker founded on the basis of supporting the idea that anyone could be successful trading stocks. It was the broker of choice for the large majority of the WallStreetBets investors. But fear not investors! While you aren’t allowed to buy any of these volatile stocks ($GME, $BB, $NOK, $AMC, etc.), you are allowed to sell your position! It’s laughable that Robinhood, a name based on the character who embodied integrity, bravery, and protecting the little guy, was one of the main suspects in defrauding the little investor from their money.
While the end of this saga is yet to be written, I’ll be keeping a close eye on how the Securities Exchange Commission (SEC) manages the fallout. I’ll be sure to make a final writeup once the dust has settled. As I’m writing this, I see there are a few articles coming out noting that the SEC are investigating the events for market manipulation. Thankfully, there might be a happy ending to the story. Wait, what’s that? Oh, the SEC is actually investigating the WallStreetBets subreddit to “assess whether such posts were part of a manipulative effort to drive up share prices?”
Yeah, I’m sorry Wall Street but I can’t do this anymore. It’s not me, it’s you.
UPDATE: At the time of writing, GME sits at $52.40. The updated short percentage is publicly noted at 42% but some believe it is still being manipulated and sits above 100%.