This past week I spent significant time on our Tumblr fielding live questions about what in the fresh-baked hell was going on with Reddit and GameStop.
I tried to keep up with the news and do the Explain Like I’m Five in real time, but it was all moving too fast. David and Goliath were fighting, and David wasn’t just winning—he was feeding his fists to Goliath like they was ham sandwiches.
Eventually I decided to hold onto my butt with the rest of you and enjoy the pyrotechnics, committing to waiting for the dust to settle before I tackled #gamestonk from a Bitch-eye-view.
Is… is it over now? Is it safe to come out?
And what the hell just happened and why am I still laughing about it?
Note: be aware that some of the Reddit links in this story have offensive language. And if two women who CHOOSE to go by “the Bitches” are slapping a content warning on something, we mean business! In particular, they really love using the r-word as a term of endearment. So consider that before you click. Additional context in the comments below.
Rules of engagement
Before we dive in, let’s define some key terms. If you’re familiar with how the stock market works and you’ve already read eleven analogies for short selling today, you can skip to the next section.
Companies chop their value up into little pieces known as shares (or stocks, for our purposes). They sell these shares to investors. Anyone can become an investor through buying shares—that is, investing—on the stock market, the marketplace through which all investing happens.
In return for investing in a company’s stock, investors earn interest, enriching themselves as the company’s stock goes up in value. The investor gets a portion of all the money the company makes in exchange for their investment.
We are not investing experts. Half the time we confuse a stock for a stalk of rhubarb and try to eat it in a pie. But we have learned a thing or two about how to invest wisely. Here’s what we’ve got:
- Investing Deathmatch: Managed Funds vs. Index Funds
- Investing Deathmatch: Traditional IRA vs. Roth IRA
- Investing Deathmatch: Paying off Debt vs. Investing in the Stock Market
- Investing Deathmatch: Investing in the Stock Market vs. Just… Not
- Investing Deathmatch: Stocks vs. Bonds
Anyway, that’s how the stock market works in its purest form: just companies and individuals investing. Here’s where it gets multitudes more high-stakes and complicated…
A hedge fund is a group that pools the money of a bunch of investors to employ more aggressive investing strategies. With vastly more sums than the average single investor has at their disposal, the goal of hedge funds is to generate higher than normal returns on investment. We’re all playing the same game; but if the average player is trying to have fun on their school-issued Lenovo, hedge funds are using aimbots and wallhacks on custom PCs that cost more than your parent’s house. They have endless resources to devote to developing financial trick plays to enrich themselves.
Well, almost endless. We’ll get to that.
Typically, you have to be uber wealthy to partner with a hedge fund. The first thing on their entry questionnaire is “Are you a member of the Greenwich Country Club, or do you own it?”
Most investors on the stock market are still normal households. But if you hear “stock market” and picture Leonardo DiCaprio in a room full of coked-out business bros shrieking “BUY! BUY! BUY!” into phones, you’re picturing a hedge fund. Honestly, they’re such classic villains it’s almost boring. They’re already-rich assholes acting selfishly and recklessly just to make themselves even richer.
“Shorting” (or short selling) stocks is when you borrow shares in a company, then immediately resell them in the prediction that you can buy them back later at a lower price. You then return the shares to the original lender they were borrowed from and pocket the difference.
For example: Imagine I went to Kitty in January of last year and said “I see that you’re big on the Switch right now, and you’re not using your PS4 much. Could I pay you a little to borrow your PS4 for one year?” She agrees, and I give her a small fee of $5 to borrow her PS4. Sweet.
Now, as soon as it’s in my hands, I turn around and sell it to someone on Craigslist for $300.
I do this because I have really good reason to suspect that the PS4 will be worth less twelve months from now. I’ve heard the PS5 is coming out, and I have a hunch that a lot of people will want to offset the cost of a new one by selling their old consoles.
So I wait until the last week of December and then check Craigslist. Sure enough, I find a PS4 listed for $100. I buy it and return it to Kitty. Then I pocket the $195 difference I made from selling her borrowed PS4. Everybody’s happy! She gets her console back, plus the $5 I paid to borrow it. And I make out like an absolute bandit.
And that’s how short selling works! It’s borrowing something now, selling it immediately, and buying it back later when it’s cheaper.
Let me be clear: It is a stupidly risky way of making money on the stock market. It’s fundamentally speculative—and if you’re wrong, your losses could be infinite (as it may be, in this particular case). Traditionally, it’s only been used by Wall Street Evil Knievels and gaping assholes who thought the housing collapse of 2008 was an “awesome opportunity.”
The big GameStop short
Disclosure: Kitty used to work for GameStop. She owns $GME stock, but she bought it recently as her patriotic duty as a basement-dwelling Redditor, not as an employee. She was a shit employee who forgot that the cases on the floor were empty and let several customers walk away with empty boxes.
GameStop, an American video game retailer, hasn’t fared well in the digital era. Gamers used to have to put on pants to drive to the vidja game store to pick up the newest Children Kill You Within Seconds of Spawning. But now they can just download it directly to their consoles while sitting at home! Which is where you can also get niche indie titles like Dad Simulator: Kingdom of the Nocturnal Children, a lush isometric pixel art deconstruction of the same genre!
This goes double for The Plague Times when social distancing is the mandate of the hour. It’s not a great time to be a brick-and-mortar retailer.
So hedge funds like Melvin Capital Management and Citron (among others), always eager to profit off of turns in the market, bet that GameStop stock was only going to go down in value. They’re gambling that the business is on the brink of failure. And they want to capitalize on this failure (read: get rich off of GameStop’s demise). So they started shorting all the GameStop stock ($GME in investing parlance) they could get their hands on.
This is all business as usual for the world of high stakes investing. But heeeeeere’s where it gets interesting. Grab your popcorn and molotov cocktails, kids, we’ve got class conflict on the horizon!
There’s tons of Reddits related to money, investing, and finance, where people share stock tips and hot investments. People who know the stock market well enough to play with it on a small scale are called day traders or retail investors. Many of them do their retail investing via investing apps like Robinhood (more on those chucklefucks later).
The one at the center of this is r/WallStreetBets (WSB). WSB is for people who vibe on the corner of Dry Financial Avenue and Wet Meme Road. Crucially, it’s funnier and sillier than most investing forums—the kind of environment where users like to egg each other on and make investments purely for the lulz.
By paying close attention, WSB found out about the plan to short GameStop stock. More accurately: they saw the short happening in real time. And they took evasive maneuvers!
Some genuinely believed the stock was undervalued, and others just wanted to antagonize the hedge funds.
The members of this Reddit forum started buying up GameStop stock en masse. These purchases drove the price of the stock way up, preventing the stock shorters at the hedge funds from fulfilling their scheme and forcing them to lose a ton of money.
The GameStop squeeze begins
This situation is called a short squeeze.
Because if the value of a stock goes up instead of down, then it’s impossible to short. The hedge funders still have to buy back the stocks they borrowed and return them to their lenders. They have no choice. Even if the stock they sold for $40 now costs $460. Instead of making a few dollars on every share, the shorters were losing hundreds.
In a single day last week, the professional hedge fund managers lost $1.6 billion.
By contrast? One of the WallStreetBets dudes turned $50,000 into $11 million in the same amount of time. The username of this brave, capitalism-disrupting hero of the digital age? u/DeepFuckingValue. (He and I are the same age: thirty-four. The values of our portfolios, however, are… not the same number.)
The internet loses its mind
Obviously, this kind of upset turns heads among the investor set. Billionaire rocket ship enthusiasts like Elon “Daddy” Musk were tweeting shit within the hour, further fueling the rush on GameStop stock.
More day traders saw what WSB was doing and got in on it, interrupting short sales left and right. It expanded beyond GameStop to include other shorted stock: AMC Entertainment, Blackberry, Nokia, and Bed Bath & Beyond. Silver shot up in price when major media outlets published rumors that it was “the next GameStop” (more on that in a moment).
Financial media scrambled to keep up with the story as it progressed—present company included!
Baby bitches, somewhere between cackling about Reddit using a meme stock to embarrass the entire system of capitalism and cringing over fake headlines spinning this as an anti-Semitic attack on International Holocaust Remembrance Day… your girl got whiplash!
One thing is clear: hedge funds be shooketh. They’re running scared and using pretty desperate techniques to save themselves from total ruin.
Beware of fake news
As of right now, there’s widespread suspicion that hedge funds are working around the clock to mitigate their losses by manipulating Reddit, the media, and the market itself.
- Nay-saying bots flooded into WSB.
- Obviously fake users appeared, urging redditors to sell or draw focus away to other shorted stocks.
- Major media outlets published hand-wringing articles about how “dangerous” this is, likely at the behest of the hedge funds themselves.
- The run on silver is probably a totally bullshit fake meme that has nothing to do with WSB.
- They put pressure on individual stock trading platforms to freeze trading just to protect themselves—a completely illegal and anti-democratic act of market manipulation and cowardly fuckery.
- They put pressure on all levels of government to intervene, even though they’re so obviously wrong they brought politicians as diverse as AOC and Ted Cruz into agreement.
- There’s evidence they may be using illegal techniques like short ladder attacks to stop the short squeeze. (Wouldn’t surprise me at all. The fines they would face, if caught, are nothing compared to their losses.)
WSB is pretty clearly laser-focused on GME. So I think it’s safe to assume that anything that isn’t GME is a deliberate attempt to distract, disrupt, or discredit this consumer-driven movement. Don’t share or invest in that stuff! IMO they’re the equivalent of scabs in an attempted union-busting.
The meme that birthed a brand new kind of activism
What does any of this literally have to do with GameStop? Almost nothing.
The company itself is not doing anything different. Its value and stock prices are soaring not because of anything GameStop has done to improve itself… only because people who play with money are artificially inflating its value through this weird war.
It’s a goddamn meme. And that shit’s hilarious.
My hat’s off to the day trading cowboys of r/WallStreetBets. By buying and retaining a mostly useless stock, these weirdly principled finance dorks are demonstrating, in real time, how fucking arbitrary the value of something can be. They are calling Wall Street’s bluff and fucking with the people who—for a living—regularly decide to drive an individual company out of business and its employees out of jobs.
Money is fucking fake and GME is king! Now put on some shades to protect your vision from the blast.
Whatever your thoughts on GameStop as a company, this is an abject lesson in how capitalism is not some hallowed, unshakeable law of the universe, but an arbitrary system we made up.
That system can be hacked. It can be broken. And it can be fun!
They can’t do that… can they?
If I know anything about rich people (aside from the fact they taste delicious when beer-battered and dipped in garlic aioli), it’s that they hate it when someone messes with their money. They also, historically speaking, tend to band together for self preservation against us Poors.
Within a few days—not even!—app-based investing brokerages tried to shut the whole thing down.
While there were several brokerages making panic moves to protect the shorted stock, I’m going to focus on Robinhood. For one thing, they were the primary vehicle through which WSB stopped the GameStop short. For another, they made their fucking bed and I’m going to force them to lie in it.
Because here at Bitches Get Riches we have a policy about honesty and ass-kicking: If you ask for it, you’re going to get it.
Enter the inappropriately named Robinhood
Is this situation sounding too clear-cut and/or thrillingly democratic for you? Good news, everyone! Robinhood is here to muddy the waters and fuck over “the little guys” they claim to exist to support!
Last week Robinhood (a stock purchasing platform popular with young and casual investors) meddled in the GameStop short-selling fiasco by allowing their customers to sell the stocks that were being shorted, but preventing them from buying any more of those shorted stocks.
The move was meant to slow down the mad increase in the stock’s value. It was triage. Ostensibly, they did it to help the hedge funds that were screwed when their short-selling scheme was interrupted by the r/WallStreetBets peeps. They claimed it was for their customers’ protection.
Post-publication edit: As you’ll read in the comments, Robinhood did have a legit reason for this questionably legal behavior. In a nutshell: they needed to have enough liquidity to cover themselves in the event all their customers pulled their money out of the app. Cheers to our brilliant commenters for explaining this way better than I have. I suspect this will not be the only update to this article!
Robinhood’s decision to intervene is of questionable legality. It’s unprecedented. And it’s unethical. To know more, we highly recommend checking out Paula Pant’s take over at Afford Anything.
Another way to understand it
Here’s an analogy for Robinhood’s freakout:
For years people with diabetes have been like “Hey could pharmaceutical companies stop inflating the price of insulin like 500% so that we can afford to not die? We have no choice but to buy insulin, and it’s not like we can just go elsewhere for this life-saving substance.”
And The Forces of Capitalism have said “Nope, sorry, that’s the will of the free market at work! Can’t fuck with that, no sir!”
So now hedge funds are saying “Hey could r/WallStreetBets stop inflating the price of these stocks we’re shorting? Because we were in the middle of shorting the stocks in a bet that they would go down in value rather than up, we can’t choose not to buy the stocks back. Now we have to buy them at like 500% of what we sold them for!”
And now The Forces of Capitalism (in the form of Robinhood and the other brokerages preventing their customers from investing) are saying “MON DIEU! This is a catastrophe! Call in the National Guard! We must stop these unwashed day traders from Reddit who don’t even have a civilized MBA from interfering in our hallowed wealth-hoarding schemes! Even though it’s totally legal and also the will of the free market at work! It’s for their own good! They know not what they do! We must protect them and ourselves (but mostly ourselves) from this totally legal thing they’re doing to fuck with the people who literally caused the 2008 Recession!”
It’s not just Robinhood—it’s fucking everything
To be clear, Robinhood isn’t the only platform that caved to hedge fund pressure. Tons of others did too: TD Ameritrade, Charles Schwabb, Webull, eToro, M1 Finance, Public, e-Trade, Interactive Brokers, Trading 212, Freetrade, and Revolut. Are you dying laughing at how many of their names include words that allude to freedom and revolutions, because LORDY LORD KNOWS I AM!
It’s part of a bigger pattern of financial systems pivoting to save the wealthy from the consequences of their egregiously foolish risk-taking. That’s been the theme of governments and markets for my entire adult life: bailouts for the rich, middle fingers for the Poors. It’s been true at every step, from the total lack of accountability in the 2008 crisis to the botched coronavirus response that was basically free money for already-rich businesses.
Robinhood is showing their hand. Their actions prove they’re not actually interested in “robbing from the rich and giving to the poor,” as their namesake would seem to imply. The towering hypocrisy of their words compared to their actions is the latest and greatest wonder of the manmade world.
Is any of this legal?
Short selling stocks is definitely legal. And while it definitely has real-world consequences… it’s considered common practice on Wall Street.
Squeezing a short sale? Also legal! Shorting is basically a gamble. Many times that gamble works out. Sometimes it doesn’t. WSB is simply ensuring that the gamble doesn’t work out. They’re calling the hedge funders’ bluff.
Observing the buying and selling happening on the stock market is totally legal. If, in the course of that observation, you notice that a stock is being shorted, that’s legal. And it’s not insider trading to take advantage of that free and public information to enrich your own portfolio.
So the only legally questionable action here is how Robinhood et al responded to #gamestonk. I honestly cannot come up with a legally defensible reason for them to prevent their customers from buying more of the shorted stocks, let alone sell their customers’ stocks without their consent or control. I’m sure they’ll find a fig leaf in the fine print of their user agreement to justify it.
The WSB gang is holding the line—hanging onto their GameStop investments, watching the value skyrocket. They have every incentive to cash out and collect their millions. But they’re not… because of the principle of the thing! You have to admire their commitment to the bit. They’re playing by the rules and winning.
Why does any of this GameStop stuff matter?
A group of amateur private investors has found a chink in capitalism’s armor. They’ve destroyed Wall Street’s veneer of impenetrability and left a flaming bag of dog poop in its place.
This whole story has made investing in the stock market seem more accessible. If for no other reason, that’s why I’m rooting for WSB. Investing should be for everyone, not just for hedge fund bros!
But what goes up must come down. That’s not economics, that’s motherfucking gravity. And the fallout from #gamestonk will have far-reaching ramifications. You’ve just witnessed the birth of a brand new form of very fast, very effective collective activism. And I can’t wait to see where it goes.
Is my retirement account in danger?
Your retirement fund is not at risk because of #gamestonk. So rest easy, my dears!
As a savvy investor, you have a well-diversified portfolio, right? You’re not in it for the lulz, you’re in it for the safe, long-term tendies! You have a healthy retirement account, maybe even a few of them. You’re probably invested in a diversified portfolio of stocks and bonds, mitigating your risk and maximizing reasonable returns.
On top of that, you haven’t bet your entire life savings on GameStop, AMC, or any of the other shorted stocks involved in this whole thing! (Unless you have.)
The stock market is huge. And this weird scenario is only affecting a handful of stocks. Most people are invested in a far more diverse array of stocks, so that even when one tanks or soars, it doesn’t significantly affect your entire retirement portfolio.
The people “hurt” by this situation are involved in a handful of specific hedge funds. They’re extremely wealthy as it is, and they’re losing money because of a gamble they themselves made. There are no innocent victims in this scenario as far as I can tell.
What should I do if I own GameStop stock?
If you previously owned GameStop stock, or you cannot afford to lose the money you’ve invested, I think you should consider that investment carefully, and sell it if you need to. The intended victims are hedge fund douchebags. We don’t want our readers caught in the crosshairs.
But if you bought GME as part of this three-ring circus? Well… Kitty did, and here’s what she has to say about it:
I made this investment after a lot of consideration. I am financially stable and can afford to lose every penny. What I want from this investment isn’t a monetary return; I don’t expect one. Rather, I want to invest in the destabilization and destruction of an unjust system. Ultimately it’s a personal decision. For me, I feel it’s my moral obligation to retain the stock until the hedge funds dash themselves upon the rocks of my resolution.
So there you have it! Kitty = diamond hands!
So should I get in on buying GameStop stock now?
In a word: FUCK NO.
That’s two words, but to be fair, we Bitches drop F-bombs as often as we draw breath. And we do it specifically because so many critics have asked us not to. ( •̀ᴗ•́ )و ̑̑
As a general rule: if you don’t know enough about day trading, retail investing, or the stock market to be able to judge when buying shares in an individual stock is a good idea… then you shouldn’t be trading in individual stocks. We’re really excited for the principle of this movement, but our readers tend to be poor folks, and you should never gamble money you can’t afford to lose. Leave that shit to the Level 20 Investing Paladins!
More opportunities will come. If you’re not already in, let this one pass you by.
Plus: It’s too late!
Our girl Dumpster Doggy has a brilliant explanation video over on The Financial Diet’s IGTV as to why it would be a real bad idea to “hop on a train that has left the station going a hundred miles an hour.” Because, as she says, “This is the stuff Las Vegas is made of.”
#gamestonk is a meme. It is not a legit get-rich-quick strategy… and definitely not a long-term investing strategy. It’s pranking Wall Street by farting directly in the face of high-powered hedge funders dealing in billions.
There’s a reason #gamestonk made news: it has never happened before. Is it likely to happen again? Fuck if I know! Probably?!
There’s absolutely nothing wrong with leveling up gradually when it comes to investing. In fact, we recommend it! Start by opening up an IRA and allocating the investments to an index fund. It won’t be as badass as screwing over short-selling hedge funders! But it’s way safer, more reliable, and more likely to pay off before the next Mayan Long Count begins.
The problem with gamifying investing
I’ve had a problem with Robinhood and its ilk for a while. Pretty much since I read this New York Times article.
In a nutshell, their app incentivizes the kind of speedy buying and selling of individual stocks that’s risky af and can lead to major losses. It’s not a healthy investing philosophy. They’re encouraging it because of their weird commission structure with Citadel, not because it’s what’s best for their customers.
The stock market was not meant for risky day trading! It’s meant for long-term, slow and steady investing strategies. For most of us it should be tear-jerkingly boring! This whole story is an aberration: a delightful, hilarious aberration fueled by the rare schadenfreude of watching rich people get real butthurt.
But for every #gamestonk, there’s many people you’ll never hear about who ruin themselves day trading. Here’s a gruesome link if you don’t believe me.
That was an intentional mood dampener. Because as much as I’m enjoying the #gamestonk show (and believe you me, I am enjoying it as much as I enjoy watching Mr. Potter celebrate Christmas alone in Bedford Falls), I cannot emphasize enough how nervous it makes me. Not for the hedge fund bros (they can suck it)—I’m nervous that the lesson young investors will take away from this is that they can win the investing game by dumping everything they have into a single meme stock.
Aim your rocket ship for the moon, pray to land among the stars
While this is something hedge funds do all the time, we do not recommend it for the average investor. None of you should try shorting stocks. Our advice is and always has been: Invest in index funds for the long term, keep a nicely diversified portfolio, and go about your business.
Our supremely wise friend over at We Want Guac puts it nicely:
This is only possible because of financial literacy and education being accessible online. Enough regular people now have the understanding needed to extrapolate what shorting a big retail company could possibly lead to, let alone what terms like “short selling” even mean. Imagine if these hedge funds actually succeeded in shorting GameStop and wiping out its entire value. There is no debate here, especially with a company that still sees a profit: this would not have provided a benefit to society as a whole.
WSB has stuck it to the Wall Street insiders specifically because they knew what they were doing. The lesson here shouldn’t be “Pile onto a meme stock because YOLO.” It should be “Get woke about investing STAT.”
This whole David and Goliath narrative was powered by Old Millennials on Reddit figuring out some stock market shit and manipulating it as a team. I guarantee there are hedge fund managers right now taking their staff to task for missing the opportunity to squeeze the GameStop short the way the Redditors did. Their misfortune is our gain… and our entertainment!
There’s more to come
#Gamestonk is a HUGE story. And it isn’t over. There will almost certainly be more developments! I welcome corrections, and we’ll happily write more about this situation as it evolves.
I wish I could wrap it all up in a tidy bow. The proletariat wins! We stuck it to the Man! Yet stock values fall, and economic and financial policy changes constantly. The only thing I’m certain about is that investing will never be the same after #gamestonk. Learn what you can, laugh heartily, and keep trying to use the system to your advantage.
Did you appreciate all the painstaking research and also beer drinking that went into writing this article? Good! Me too! Consider joining our Patreon to keep funding articles like this. We’re 100% donor-funded and steadfastly unwilling to compromise ourselves with sponsors like Robinhood LMAOOOOO.
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