How Reddit Took On Hedge Funds… And Won
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A classic example of David vs Goliath
The internet can’t be stopped.
When the internet unites for a singular cause we can see amazing things happen. Late last month a subreddit, called WallStreetBets, released a potential short squeeze for the stock GME (GameStop). So the retail investors on this subreddit put various amounts of many in hopes of rising it’s price. And this bet paid off. Big hedge Funds, including Melvin Capital, were hit hard after shorting over 100% of the stock and losing billions of dollars (yes with a b).
Why is this a big deal?
These hedge fund managers are the same people that after the 2008 stock market crash laughed in our faces while pocketing lucrative profits. So, what’d they do when they notice their money twirl down the drain? They cheated. They cheated in such a way that is completely inconceivable and unprecedented. Before I get into how, it’s important to understand the basics of what happened here. Melvin Capital, and other hedge funds, were shorting the stock (betting on it going down), but the subreddit WallStreetBets caught onto this and the internet warriors united together to buy into the stock and
“send it to the moon”. This big team of amateur retail investors went all in this stock making it soar in price from around $20 to record highs around $340. Most of these investors were completely new to the stock market, some living in their parent’s basement to others barely scraping by to others dumping in their life savings. The majority of these investors were attracted to the trading platform Robinhood. Robinhood is an app that greatly simplifies investing and has no trading fees, which appeals to the beginner investor. But when GameStop was hitting record highs Robinhood ILLEGALLY stopped buying on their platform. When you have a stock that is traded heavily on this platform and suddenly you nor anyone else can buy this stock on this platform anymore, naturally the stock will go down. And it crashed fast and hard. Just 4 days after GameStop hit $325 it plummeted all the way down $54. Now you’re probably reflecting on the title and thinking “how did we win”? Well, it is a matter of perspective, a lot of people made a lot of money, and more lost a lot, however simply scrolling through the WallStreetBets subreddit you’ll notice that it’s not just about making money, it’s more about making these corrupt hedge fund managers pay. The Robinhood CEO, Vlad Tenev, is under heavy fire by both sides of the aisle in a pending Congressional hearing. Melvin Capitol lost over half of its capital ($4.5 billion dollars).
Is it too late to get in?
Yes and no. GameStop has completely tumbled and there are no signs of a recovery anytime soon. But we are witnessing the biggest bull market we’ve seen in years despite Covid-19. These hedge funds want the other 99% of us to sit on our hands and to stuff our hard-earned money into a bank account, instead of the stock market because as we proved, we retail investors can disrupt the market and make money. This is an exciting time in the stock market, the electric vehicle, cannabis, and cryptocurrency markets are exploding as we near the end of the first fiscal quarter of 2021. We are seeing a paradigm shift in the way the market is traded. We the people are starting to take the power out of the hedge funds (and other big investors) and putting it back into the hands of the ordinary people.
