This May Never Happen Again in Our Investing Careers

Unless you’ve been under a rock for the past couple months, you’ve likely seen a lot of digital ink spilled over the investing community wallstreetbets on Reddit.

They have been gaining a critical mass of followers and now have enough firepower to take on hedge funds and institutional short sellers.

Over the past few weeks they’ve aimed their sights on a handful of older companies that have a lot of “short interest” in them (this means big institutional investors are betting a lot of money that the stocks will decrease in price).

Unfortunately for those legacy investors that have used this method for years to get rich and make profit off dying companies, WSB has gotten wind of their hubris when it comes to some big brick-and-mortar names like GameStop, Bed Bath and Beyond, AMC Theaters, and Blackberry.

What happens if the stocks don’t decrease in price like the hedge funds hope? They have to buy more shares or risk losing out on huge premiums that they paid to make the bet in the first place (it’s called a short squeeze).

And that’s exactly what WSB wants to happen so they are buying tons of shares and call options to prevent the stocks from going down in price.

It’s working, for now:

It’s similar to a revolution in that it took a lot of people (retail investors) to rise up against the ruling class (hedge funds) and once they had a place to organize (social media message boards) and the free time (COVID) and money (stimulus checks + earning power) and ability (free trades thanks to Robinhood), they pulled the trigger.

On the surface, they are trolling the billionaires, but it also goes deeper than that. They view this as waging war against the elite that look down their noses at the little guy. It’s David vs. Goliath. It’s Occupy GameStop. It’s a coordinated attack. It’s a passionate community.

I love it. Social media has more content than it can handle. Pundits and journalists are having a field day. Experts are fighting amongst themselves to explain it all.

This won’t last forever and it may never happen again. It borders market manipulation and may induce SEC investigation.

Enjoy the show and whatever you do, don’t short GameStop.

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More reading:

Something Close Enough

How many thousands of dollars and hours are spent in the relentless pursuit of perfection when something close enough is already available? Almost all of personal finance can be boiled down to this one little human flaw.


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