Dumb Money, a movie on one of the most significant cultural events in the stock markets over the last decade, releases in India next week (October 13). Not much should be expected from the film. Based on the book The Antisocial Network by Ben Mesrich, it is touted as another David vs Goliath story. Typically, Hollywood tends to turn these too into heroes Vs villains with good almost always triumphing over evil. Any hope of a more sensible approach is dispelled by the presence of Seth Rogen who can be trusted to inject the necessary dose of stupidity to turn it into a pedestrian affair.
Stupidity in gargantuan proportions surrounds the event itself, the story of GameStop Corp., a struggling US chain of video game stores whose stock was languishing in the early single digits as of January 2020. Hemorrhaging money in the middle of the lockdown, GameStop was planning to close down hundreds of its stores. By then hedge funds had already been shorting the stock, essentially betting on its further decline.
That's when Keith Gill, a marketing professional and investor, went out and put $53,000 at $5 a share in the company’s stock and subsequently shared a picture of that on social media platform Reddit. Gill who went as Roaring Kitty on YouTube and DeepFuckingValue on reddit, advised anyone who cared to listen to do the same. For a while he got very little traction. But then, as happens often with posts on social media, suddenly and unaccountably, the stock recommendation caught the attention of many young and new investors hoping to make a quick buck at a time when jobs were scarce and the future looked grim.
The first signs of revival came in the middle of 2020 when the legendary Michael Burry’s firm acquired a 3.3 percent stake in the firm. Then in September 2020 Ryan Cohen, who had founded online pet food giant Chewy, bought a 13 percent stake in the game retailer and joined its board with a plan to move more of its business online. As the terrifying days of the second wave of Covid-19 sent people back to hunkering at home, the stock started rising, from $3.25 in April 2020 to $145 by January 26, 2021, and then to $469 two days later.
Investors in India too got in on the frenzy, buying GameStop shares through online trading platforms that facilitated trading in US stocks. Such was the madness for the stock that shares of an Australian mining company, GME Resources, spiked 50 percent merely because its symbol GME on the local exchange was the same as that of GameStop on the New York Stock Exchange. At its peak, the Wall Street Bets community on reddit, which had come together to post up the price of GameStop stock and that of a few other companies, was 8 million people strong.
As the stock price and the trading volumes soared, the one community that got badly hurt was the hedge funds that had borrowed to sell the shares and now found themselves at the receiving end of a vicious short squeeze. The more they tried to buy the shares to cover their positions, the higher its price rose.
Inevitably, by the end of the month, the madness started easing and by February 2, the stock had dropped 80 percent from its peak value. Sadly, many retail investors started buying the stock only at its peak. Even when the shares started dropping, most held on to them, convinced it would go back to its previous highs. It never did. GameStop today languishes at $15.75 and that too after a recent spike when Cohen took over as CEO.
But the GameStop fairy tale featuring the Johns and the Janes of the markets is well and truly over. As a successor to the Occupy Wall Street movement, it promised a lot. If the latter railed against economic inequality and the influence of money in politics, the former was a revolt against the established giants of Wall Street who had done so much in 2008 to bring the financial world to its knees. That the big banks and hedge funds got away scot-free was a travesty. That they continued to employ tactics like short squeeze to make astronomical profits was even worse. That they could be tamed, even defeated, by small investors gathered under the umbrella of a social media moniker was a chimera. Eventually, Wall Street hedge funds were back albeit with losses running into billions. A few, like the $13 billion fund Melvin Capital, even had to shut down. Robin Hood, the online investing app that made it possible to trade easily in the stock of GameStop and other such meme stock, took a reputational beating.
Ultimately, the sheer irrefutable logic of the markets reinstated the old order. Forgotten in this stirring tale of the small guy finally getting his own back was the sheer irrationality of expecting a deadbeat company’s stock to rise 8000 percent in such a short period of time.
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