It's a David and Goliath story of the modern age. A rogue group of individual investors band together in an online community and decide to take down hedge funds that profit from companies failing. The battle is raging around video game seller GameStop (GME 0.49%), which has shown three straight years of declining revenue and earnings per share.
Hedge funds Melvin Capital, Citron Research, and others had bet on the retailer to lose value. But traders in the Reddit community r/WallStreetBets had other plans. They intentionally unleashed a barrage of trading activity to drive an inexplicable rise in the price of GME stock, forcing both funds to incur huge losses and close out their short positions.
As if that weren't enough drama, this story also has a number of celebrity appearances -- as well-known investors and personalities have taken to Twitter to add their own color commentary. Here's what seven of them have to say.
I got to say I LOVE LOVE what is going on with #wallstreetbets. All of those years of High Frequency Traders front running retail traders,now speed and density of information and retail trading is giving the little guy an edge. Even my 11 yr old traded w them and made $— Mark Cuban (@mcuban) January 28, 2021
High-frequency trading (HFT) uses complex algorithms to analyze data and fulfill trade orders very quickly. It's controversial because HFT traders use the speed of rules-based decision-making to turn profits, often at the expense of individual investors who are slower to process information and execute trades.
As Cuban touches on, HFT gives institutional traders a clear advantage over the little guy. And that's exactly what motivated the WallStreetBets community to push back against a system that feels rigged against them.
u can't sell houses u don't own— Elon Musk (@elonmusk) January 28, 2021
u can't sell cars u don't own
u *can* sell stock u don't own!?
this is bs – shorting is a scam
legal only for vestigial reasons
Musk is not a fan short-sellers, obviously. But there is history here. His own company Tesla has had its share of run-ins with short sellers -- prompting Musk to float the idea of taking Tesla private in 2018.
The Gamestop thing is a reminder that investing is not the study of finance. It's the study of how people behave with money, and sometimes those behaviors are incredible.— Morgan Housel (@morganhousel) January 26, 2021
As WallStreetBets has shown us, despite the technology that powers the financial markets, investing is still a very human activity.
Robinhood was never what it pretended to be. It built its business on selling Wall Street Bets order flow to the hedge fund Citadel. In the moment of truth, we learned which customer it cares about the most.— Tyler Winklevoss (@tyler) January 28, 2021
Winklevoss is referring to Robinhood's decision to halt purchases of GME stock temporarily, while still allowing for liquidations. Incidentally, Melvin Capital is owned by Citadel, LLC, a company that's responsible for 40% of Robinhood's revenue. It would seem that Robinhood may not be the trading platform for the people after all.
In moments of uncertainty, when courage and strength are required, you find out who the true corporatist scumbags are.— Chamath Palihapitiya (@chamath) January 28, 2021
Palihapitiya also calls out Robinhood for failing to live into its own mission when it had the chance.
Old days where a hedge fund manager could quietly short a stock, then publish negative research and take a bullhorn to it in the media are over. They now run the risk that he power of the crowd will turn on them and squeeze their heads like a teenage pimple. I'm good with it!— Kevin O'Leary aka Mr. Wonderful (@kevinolearytv) January 28, 2021
Even Mr. Wonderful is a proponent of having checks and balances in place to prevent market manipulation. Even better if those checks and balances are driven by an angry crowd of everyday investors.
So what happens next?? They freeze everybody's accounts. Lawsuits happen.. They never end.. #WallStreetBets goes into hiding... Dogecoin goes to the moon.. the world goes on??— Pat McAfee (@PatMcAfeeShow) January 29, 2021
McAfee is known for his professional sports and commentating career rather than his investing prowess, but he does ask an important question. Now that the little guys have shaken up the institution of Wall Street, where do we go from here?
Legislators Elizabeth Warren and Paul Gosar are asking for investigations into Robinhood's actions and users are already filing class action lawsuits against the trading app. But short-selling, HFT, and WallStreetBets will continue on. The band of rogue traders has actually already moved on to its next targets, namely AMC, Nokia, and Blackberry.