When 32-year-old Vancouver resident Brian Geddes began regularly trading stocks on the Robinhood app last year, it was mainly to keep busy after he lost his job in the pandemic. But when he decided to make a bigger bet on video game retail chain GameStop two weeks ago, he felt like he was joining an emerging political movement.
“I want to tell my grandkids about the Great Game-Stock Short Squeeze,” he said.
The alliterative moniker refers to an ongoing financial battle that began about two weeks ago when users of a Reddit discussion board called WallStreetBets began heavily investing in GameStop, sending the company’s stock price on a roller coaster ride that briefly carried it as high as 1,700 percent above where it had been hovering at the end of last year.
Like many brick-and-mortar retailers, GameStop has been hurt by the rise of online retail. The company’s stock has been in decline for years, prompting investors to begin shorting it — selling borrowed shares in the hopes of profiting by later buying them back at a lower price, essentially betting that the company’s fortunes will continue to fall.
Geddes and the other WallStreetBets denizens are doing what’s called a “short squeeze.” The idea is that by buying stocks and driving the price up, the buyers will eventually force the short sellers to buy back their borrowed shares at a loss rather than risk a greater financial hit — and in doing so, they push the share price even higher.
Short squeezes aren’t a new concept in the world of financial markets, but a short squeeze coordinated on social media and led by an army of small-scale investors is relatively unprecedented.
The other thing that sets the GameStop squeeze apart is that, depending on whom you ask, it’s not really about getting rich. As outlined in several popular posts on WallStreetBets, the movement’s goal is to inflict financial pain on the various hedge funds that have taken short-selling positions against GameStop and other big retailers.
‘Taking a proverbial stand’
Multiplex cinema chain AMC and a handful of other beleaguered legacy companies have also seen their stock boosted by WallStreetBets investors in the past two weeks, again with the goal of taking on the hedge funds, which the Redditors seem to view as a symbol of Wall Street greed.
That same stick-it-to-the-man philosophy in part drove 24-year-old Vancouver resident Donnie Rhoads to try retail trading for the first time. He wanted to make a profit — and he did, gaining $140 on his modest purchase of GameStop shares — but he also wanted to make a point.
“Personally, I don’t believe GameStop is that promising of an investment,” said Rhoads, who decided to buy 2.6 shares of the stock in tandem with a few of his friends. “It was more about taking a proverbial stand against hedge funds.”
“I would say it was half-and-half. It was lighthearted as well,” he added. “It’s kind of like gambling, or paying X amount of money for entertainment now that casinos are closed.”
Five local retail investors spoke with The Columbian. All used Robinhood, which is an app ostensibly aimed at making the stock market more accessible to ordinary people and bears a company motto of “Democratizing finance for all.” The rise of Robinhood and other easy-access mobile trading apps helped make Reddit’s small-trader squeeze approach possible.
The group includes Clark County resident Mychael Jones, a frequent follower of WallStreetBets. When he saw users start urging people on the forum to buy stock in GameStop, he said, he wanted to get involved.
Jones bought a small portion of that stock and then sold it, pocketing “a little profit,” he wrote in a message to The Columbian. He then decided to set his sights on another company championed by the Reddit forum: Blackberry.
“I had placed $1,000 worth of call options on Blackberry,” Jones said on Jan. 29. He “was up 400 percent going (into) market close on Wednesday, watched the stocks plummet in after-hours (trading), and then was only allowed to sell out of positions by Robinhood on Thursday.”
“Being that the masses were only allowed to sell on Thursday wrecked my call option,” Jones continued. “What was an initial investment of $980 (and then turned into nearly $4,000) ended up being automatically sold by Robinhood for $17, an hour and fifteen minutes before close today.”
Robinhood under fire
Jones was one of the thousands of retail traders who found their ability to participate in the free market knee-capped last week by the same mobile trading apps that gave them their original entry point.
Faced with skyrocketing prices, Robinhood froze purchases on 13 stocks including Blackberry, GameStop and AMC. Like Jones, some users reported having their shares sold by the app without their permission.
All five Vancouver buyers who spoke to The Columbian expressed frustration with Robinhood’s decision to limit GameStop stock purchases last week, a move that they described as tantamount to market manipulation.
The company’s actions didn’t escape notice from federal lawmakers across the spectrum, drawing ire from a group that included both Sen. Ted Cruz, R-Texas, and Rep. Alexandria Ocasio-Cortez, D-N.Y.
Rep. Jaime Herrera Beutler, R-Battle Ground, also called on Security and Exchange Commission Chairwoman Allison Herren Lee to conduct a full investigation into what the congresswoman called “an attack on our free market principles.”
“Americans deserve integrity in our financial markets, but it appears some brokerage platforms may have broken the law by putting their thumb on the scale to protect privileged Wall Street investors over small individual investors,” Herrera Beutler said in a media release.
“While I am pleased to see the SEC plans to review possible unfair actions, I believe a formal investigation into the financial services institutions and trade clearing firms who restricted the purchase of these stocks is warranted.”
Big stock players weren’t all thrilled with Robinhood’s decision either. Camas-based financial management firm Fisher Investments appeared to side with the Redditors, at least when it came to Robinhood’s decision to halt trading.
“Our general stance on all stuff like this is, let the market decide,” company executives Elisabeth Dellinger and Todd Bliman wrote in an article published last week on the Fisher Investments website.
The duo didn’t ultimately see GameStop’s turn in the financial spotlight as a major shake-up on Wall Street.
“If you are a long-term investor, this is much more noise than news,” they wrote.
The ultimate outcome of Reddit’s gamble remains to be seen, but GameStop’s stock performance became considerably less rosy as the week continued.
Shares took a precipitous dive on Tuesday, held steady at about $90 on Wednesday and then slid consistently downward on Thursday to close at $53.33 — still ahead of the under-$20 range that it had occupied before WallStreetBets moved in, but far below last week’s peak of $396. The slow decline continued in after-hours trading Thursday.
GameStop shares rallied Friday, closing at $63.77 on the New York Stock Exchange, up 19 percent from Thursday’s close.
Some of the local investors who spoke to The Columbian did acknowledge the possibility that they could be left holding the bag if the bubble pops and shares crash, but they expressed confidence that the Reddit army could prevail if it holds its stocks long enough to outlast the hedge funds.
“I saw my own father lose half his pension because of Wall Street’s greed,” local investor Jeremy Houtsma wrote in an email. Users of the WallStreetBets forum, he added, are “seeing this as revenge.”
This story has been updated to correct an error in the spelling of the last name of Brian Geddes.