A couple of weeks ago, a subreddit called wallstreetbets (WSB) became the subject of much media attention. For those who are unaware, Reddit is one of the most popular websites on the internet. Sometimes referred to as the "front page of the internet", the site received 1.74 billion unique visitors in December 2020. In simple terms, Reddit is one of the largest forum style websites in the world. The reason for the heightened media attention of Reddit over the last couple weeks is because of WSB and their involvement in the GameStop stock ($GME) controversy. As of yesterday afternoon, The Verge is reporting that 5 movies, and two TV shows are in the works to document this ongoing story.
To give some context and background information on the situation, a little over a year ago, a redditor who goes by the name u/deepfuckingvalue discovered that GameStop shares had been heavily shorted and invested $50K into the stock. Before continuing, WSB has recently been portrayed in the media as being a "hive mind" and a "decentralized hedge fund", an idea perpetrated by some of the users of WSB. Historically, this has not been what WSB has been known for. Until recently, WSB has been known primarily for users posting massive losses. Users will post images of their portfolios showing how they "yoloed" their entire 401K, daughter's wedding budget or a child's college account into risky stocks that went to zero, costing them their entire investment. It was a place where users could join together to commiserate and discuss their misfortune. As the saying goes, "misery loves company". This all changed a couple weeks ago when the subreddit exploded from about 1.5 million users to nearly 9 million.
The GME situation came to a head when a large number of individuals, realizing that the stock was shorted 140% began buying heavily, these individuals, referred to as retail investors, bought the shares for a variety of reasons. Some of them like the stock, some believe it may be a viable long term investment, some are just trying to stick it to the hedge funds for their own personal reasons. As millions of investors rushed to purchase the stock, it shot up from about $18 a share to a hight of $483, before falling back down to its current price, hovering around $50. Because of the vast number of shares that had been shorted, investors believed that the situation could turn into a gamma squeeze; essentially a situation in which there is no upper limit on the value of a stock. Those who have been shorting the stock have to buy back the shorted shares, and in a situation where more than 100% of share have been shorted, there is no limit on what those who shorted the shares might have to pay in order to buy back shares.
The more recent, and more controversial part of the GameStop saga, is the freeze in trading instituted by Robinhood and other no fee trading platforms. As the value of GameStop shares began rising exponentially, most trading platforms froze the purchase of new shares, allowing holders to sell their positions, but unable to add new shares. The trading platforms blamed new regulations requiring them to have more capital on hand, retail investors accused Robinhood and other brokerages of freezing trading to allow those holding short positions to prevent further losses. Currently there are hearings scheduled in the House Financial Services Committee for February 18, 2021. Many Redditors are concerned that the hearings will accomplish nothing, and rather than the hedge funds being penalized for what many believe were illegal actions, they will walk away with a slap on the wrist.
Whether the GME saga will result in a new age for retail investors, or signifies more of the status quo, remains to be seen. It is unlikely that any significant changes will occur before the 18th. In the meantime, Redditors are pushing for current shareholders to continue to hold as they do not believe that they have seen the end of the story.
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