A band of mostly young day traders who coordinate on Reddit to drive up the share price of struggling companies are taking aim at hedge funds and short-sellers — those who’ve placed bets that…
The GameStop frenzy on Wall Street has investors, and much of the internet, enraptured — not unlike a good horror movie. Everyone knows doom is just around the corner for some key players; a lucky few will emerge stronger; and the monster might be subdued but will ultimately come back for a sequel. Who’s the monster and who’s the hero, in this case, depends entirely on your perspective. On one side you have a band of mostly young day traders who coordinate on Reddit to drive up the share price of struggling companies, including GameStop, but also BlackBerry, Macy’s and AMC. At least one Reddit user posted that he’d paid off thousands of dollars in student loans with his GameStop gains. On the other you have hedge funds and short-sellers — those who’ve placed bets that a company’s stock will crash. These are Wall Street elite, the sort of investors millions of people rely on to make the smart decisions that boost their portfolios. But they’re detested by many Millennials and Gen Zers for creating a house-of-cards financial system that led to the 2008 crisis. We’re now, potentially, at the climax of this movie: GameStop is up more than 1,700% since the start of January. Some trading platforms, including TD Ameritrade and Robinhood, are restricting trades on AMC and GameStop. The SEC and the White House on Wednesday both said they were monitoring the situation. Here’s the background you need to know. The popular Reddit page WallStreetBets is fond of targeting short-sellers. If you’ve ever played craps, these are the guys betting against the table, and their tactics, while often lucrative, have burnished their reputation as bloodsuckers and other, unpublishable, names. (More on that later.) It’s not hard to understand why someone would short GameStop, however. The company is expected to lose money this year and next. Sales growth is sluggish because gamers no longer need to go to the mall to buy games or consoles. That said, some investors have argued that GameStop was seriously undervalued, especially when video games have become staples of the stay-at-home pandemic era. The GameStop stock surge began for a legitimate reason: The company announced Jan.11 it had added three new directors to its board, including Chewy co-founder Ryan Cohen. Investors liked that Cohen brought digital experience to the table, something the largely brick-and-mortar GameStop desperately needs, as video games go digital and malls continue their unending slump into irrelevance.
