Gamestop, YOLO trades and wallstreetbets: How trading and trolling wreaked havoc on Wall Street
‘YOLO’ (You Only Live Once) was an aphoristic meme that burst into internet vernacular in the mid-2010s, summed up by a cynical mainstream as ‘carpe diem, for idiots’.
It was a viral hashtag on Twitter and Instagram, most often posted with a dollop of sarcasm.
The acronym has now been stuck to something else, a mishmash of high-risk stock trading and internet trolling.
To call it a trading strategy may overstate or aggrandise what is a blunt and rudimentary scheme.
A YOLO trade sees a millennial ‘investor’ bet their savings on a single stock, a stock that has been selected in Reddit communities such as r/Wallstreetbets.
It is as simple as agreeing to put all your money on whichever stock the internet tells you to buy.
YOLO is only a small part of the story, and, maybe it represents only a small minority. Would someone really bet their entire lifesavings on a high-street retailer, all for the sake of an internet meme?
It is a novelty but it shouldn’t distract from a more tangible and impactful trend.
‘Crowd trading’ is perhaps an easy label to describe what has seen a number of stocks and financial instruments (including Bitcoin and cryptos) rally in recent times. It is at the centre of the Gamestop kerfuffle.
Large online groups are collectively targeting specific stocks to buy and, evidently, it is playing havoc in the market.
So much can be unpacked yet much of it is barely financial or economic in nature.
For some, these trades are an act of protest, an attack on ‘the establishment’, or simply a means to poke ‘the boomers’ in the eye.
For the stock market, the big story is the evident power that technology has put in the hands of retail investors.
It has, of course, cost some short-selling Wall Street hedge funds a stack of cash.
Reports say short-sellers have lost billions of dollars as a wave of buy orders and option trades squeezed Gamestop shares ever higher.
Some US$20bn worth of GME stock changed hands of Tuesday, making the video game retailer the most traded equity anywhere in the world for the day.
Technology empowering retail
Retail investors have already been empowered by innovation and technologies for years.
Technology products and services have for decades transformed stock trading – from the dematerialised settlement which consigned share certificates to museums, through to online stockbroker accounts, portfolio analytics, direct market access, and retail derivatives (CFDs, spreadbets and options).
An emergence of social-media style trading technologies have, however, brought a new tipping point.
Social media platforms like Reddit engage large dynamic communities, and some are more mischievous than others.
They’re not unlike familiar investor bulletin boards – if they were drawn up in Marvel comic books. Think ADVFN after a high dose of gamma radiation. Like a colourful angry hulk that smashes in order to ‘fight the bad guys’.
These digital communities comprise large numbers of millennials who publicly but anonymously share speculative trading ideas, decide which stocks to target and post screenshots of their trade receipts.
The number of trade reports swell – alongside the tally of rocket emojis, gifs and Joker memes – and at a certain point, out in the market, it manifests as a ‘meme-stock’ rally.
As of Wednesday’s premarket, Gamestop stock was priced at US$290.00, up more than 1,200% from US$18.84 at the turn of the calendar year.
This surge in price for the bricks-and-mortar video games retailer is the latest explosive example of the meme-stock trend.
Like most retailers, Gamestop has seen the COVID-19 pandemic and lockdown restrictions act as accelerants to what was already a multi-year transition from physical storefronts to predominately online selling.
Broadly speaking, GME’s circumstances are quite unremarkable in the sector. Albeit, as a video games retailer, it is familiar to the millennials on WSB. The presence of short selling hedge funds perhaps added some fuel to fire too, providing a political or cultural narrative for some.
Wallstreetbets: 4Chan with a Bloomberg terminal
Whatever singled out Gamestop as a Reddit meme-stock, the wave of share buying in recent days is spectacular. And reflects the scale of the emerging investor counterculture.
WallStreetBets sets its own context quite succinctly, describing itself with a community tag-line of “Like 4chan found a Bloomberg Terminal”.
The Reddit community has 2.3mln users (or, as WSB says, 2.3mln degenerates) and was originally created in January 2012.
Groups like WSB are part of the same ‘crowd trading’ culture, popularised in trading apps like Robinhood, that previously saw millennials drive up the prices of Bitcoin, Tesla and numerous NASDAQ tech stocks through much of 2020.
It might be instructive to know how much Bitcoin proceeds have been flippantly risked in GME trades. There are also those that claim to have used their COVID-19 stimulus cheque, US$600 issued by the US government, to buy the shares.
The mainstream investment community – or Boomers, as WSB members prefer to call them – typically see these groups as a reckless financially illiterate mob.
They are accused of creating bubbles through ‘dangerous’ high risk speculation and market abuse, and, there are calls for the SEC to take action.
Such calls have grown in number over the past two days.
In the meantime, Gamestop shares continue to point upwards – and other stocks appear to be in the frame on WSB too, notably AMC and Blackberry, up 333% and 9% respectively in Wednesday’s premarket.
Elsewhere, Gamestop shortsellers are said to have lost around US$5bn to date.
It also remains to be seen how the WSB’s army of retail investors can possibly all exit their positions without crashing the price.