You’ve likely heard the impressive GameStop story about how an online community on Reddit – /r/WallStreetBets – took on Wall Street and won. The story goes that some average Joes on Reddit took out hedge funds by causing a surge in GameStop stock. This righteous revolution was brought down recently when trading apps like Robinhood stopped trading, likely because they were working with the evil hedge funds to manipulate the market. There were many traders who lost money and evil capitalists who made money. The idea was outrageous. It was as if the mighty magical slingshot used by David to slay Goliath stopped working because Goliath was secretly in control of it. The people called for blood and demanded Robinhood executives go to prison while extolling the populism of day-trading and stock speculation.
Unfortunately, this version of the GameStop story is almost entirely wrong. It doesn’t begin to cover why GameStop stock rose and what really happened. One popular misconception is the idea that these Redditors are the remnants of Occupy Wall Street. They are not. As WallStreetBets themselves will tell you, it’s a bunch of idiots upvoting memes with money. To be more accurate, the group is almost like an evolution of a hedge fund in and of itself. The average day trader on Reddit is a well-off dude in his 30s, possibly a finance worker or someone who used to work in the sector. Some of them are rich enough they can live in gated communities.
It is true that they’ve done something incredible by using Reddit to move the market and take money from billionaires, but not all of them can be counted among those who won. The fact is that many of the major GameStop stockholders, such as asset manager BlackRock, made billions from GameStop stock. This isn’t a victory for the little guy, that half of America with almost no money in the stock market who shouldn’t be investing in meme stocks anyway.
The idea that Robinhood restricted trading to quash the rebellion is also a bit misleading. The company ran out of money. When GameStop and AMC stocks exploded, the brokerage had to hand over several billion dollars to the National Securities Clearing Corporation. The company obviously didn’t have billions lying around, so they had no choice but to prevent people from buying and selling extreme stocks while collecting money from investors. We know this because large brokerages didn’t prevent trading because they had the money to cover the costs. Charles Schwab, for example, didn’t go down.
Was investing in GameStop an example of investing done right? Some politicians seem to think so. Representative Alexandria Ocasio-Cortez praised the investors and said that the movement was so popular because it was holding Big Money accountable. It felt like a group of upstarts taking down Wall Street and making the stock market more open to the masses. She asked if the Reddit traders could change how the “game is rigged” and said that everyday retail investors could fare better from now on.
It doesn’t make much sense to try punishing the rich by buying and selling stocks. Day traders regularly lose money to bigger players. It’s also impossible to participate in a market dominated by large institutional investors when every trade seems to punish the status quo. Trying to take down Big Finance by becoming a day trader would be like trying to stick it to a casino by becoming a gambling addict. Even if you start winning, you’re still participating in the economy and helping others make money.
It’s impressive how Reddit has managed to mess things up for Wall Street. It’s truly impressive that a bunch of people with more money than sense managed to accidentally manipulate the stock market. It showed there are plenty of flaws in the financial system, for sure. Because there are. It’s just worth noting that these are hardly modern-day heroes who don’t have much money claiming the stock market for Average Joe. If anything, it’s now impossible for regular folks to join in because GameStop stock has become too expensive.
It’s unknown what all of this means for the future. We don’t know for sure who will win and who will lose in the long run. For now, remember the key tenet of WSB – “Ape together strong.” Keep up the good fight, but remember why you are fighting, how you are fighting, and what it means. The stock market needs to change and billionaires need to lose some money, but not by enriching other billionaires who are playing everyone like a fiddle.