When the internet rallies behind a meme, some of the best shit happens. If there’s an opportunity to make institutions look foolish, even better. And on the off chance money can be earned, you can be sure cowboy shenanigans are on the cards. Case in point: what is arguably this year’s second most incredible investing story after Bitcoin, which involves the subreddit r/WallStreetBets and GameStop stocks (NYSE: GME).
Similar to many brick-and-mortar retail fronts last year, GameStop was struggling to keep its head above water during the pandemic. Prior to COVID-19, it hadn’t exactly been smooth sailing either, given the growing consumer trend of purchasing video games online as opposed to in person. Heading into 2020, the company posted US$470 million in net losses, would permanently close over 300 locations, and have a negligible stock price of around US$3.25 (as of April 1st). Suffice it to say, it was looking pretty grim.
The turning point occurred in August when Chewy founder and prolific investor – Ryan Cohen – acquired a 13% stake in GameStop. A few months later in November, Cohen penned a letter directed to the company’s board which certainly didn’t pull any punches when it came to addressing major errors; from being left behind with the times, wasting billions in capital, and surrendering considerable market share. Naturally, this letter gained a lot of public attention, leading Cohen and two other associates of the former’s RC Ventures to be appointed to the GameStop board. Now here’s where it gets really interesting…
As noted by Bloomberg, many viewed Ryan Cohen as GameStop’s “messiah” (stocks surged from US$20 to just under US$38 after the announcement), while others believed he was the perfect bait for retail investors. The big dogs of Wall Street moved quickly to bet against GME by shorting the hype train as it left the station. Taking notice of said shorts and determined to honour their self-styled anti-establishment description – “Like 4Chan found a Bloomberg terminal” – that’s when r/WallStreetBets decided to intervene, banding together for a historic short squeeze in defiance of the “boomers”.
A guideline titled “Bankrupting Institutional Investors for Dummies, ft. GameStop” was published to the 2 million-strong Reddit community which basically outlined how they could profit by forcing short sellers to abandon their positions and buy back GME stocks at a huge loss. This was their chance at a multi-billion dollar “fuck you” to those who they deemed arrogant and undeserving. So they got to buying… and buying… and buying. Momentum picked up in no time and hasn’t appeared to slow since.
To the victors go the spoils of war, and to make a long story short, here are some highlight gains:
- Dr Michael Burry of The Big Short fame has helped Scion Asset Management experience gains in the way of +1,500% after less than four months (US$271 million at peak trading)
- Ryan Cohen – the “messiah” who was instrumental to the GameStop stock’s turnaround – has experienced returns in the way of +1,700% (turning an initial US$76 million investment into over US$1.4 billion at peak trading)
- On the real everyday hero front, Redditor u/DeepFuckingValue has managed to turn approximately US$50,000 into US$22 million
- Short-sellers, on the other hand, have copped record losses of US$5 billion in the last year
- As for the GameStop stock, from April 1st to present day, it’s seen over +4,453% of growth (market capitalisation: US$10.32 billion)
Ya love to see it…