I’ve been trading stocks and options contracts for over a decade and have never seen anything like what happened last week. Companies that were written off as dead started coming back to life. Gamestop, AMC theaters, and Blackberry just to name a few. It didn’t make sense at all, these companies were closer to bankruptcy than they were to making a comeback. So why were they rising? What was causing this sudden interest in these dying companies?
A group known as Wall Street Bets gained a large following on the internet via many different platforms, Reddit being one of their largest. They often post content about stocks and memes related to finance. Some of their users claimed they were tired of Wall Street and hedge funds making billions of dollars at the expense of the general public. The group had been organizing a movement to buy as many shares of Gamestop as possible for two reasons. First, there is nostalgia associated with this company and all of the others that Wall Street was “trying to kill”. They grew up buying video games at this brick and mortar store when they were children. Secondly, it was the stock with the highest percentage of shorted shares.
This topic was chosen for the blog assignment because it is a current even that showcases teamwork and leadership. It also demonstrates how teamwork and leadership can be conducted online without ever meeting the team members face to face. In a world where this pandemic has forced people to quarantine, I felt that it was perfect because it highlights leadership and teamwork within this online community. As you’ll see in this summary of the events, the online leaders of Wall Street Bets gathered a team and unified them to fight for one purpose. That purpose was to stand up for the general population and show the large institutions that they will not be manipulated anymore. Thousands of people supported this movement and joined this online team. After a few days, there were then hundreds of thousands team members who were ready to start buying shares. These strangers came together over the internet to fight for this shared idea of standing up to the hedge funds.
If a stock has shorted shares, that means that shares were borrowed and sold to watch the company slowly go out of business. When shorting these shares, the hedge funds and large institutions would have to buy back shares at a much lower price in order to realize profits. When the Wall Street Bets group started pumping money into Gamestop, the share prices continued to rise. Eventually, this created a short squeeze, meaning that the hedge funds were required to buy back the shares. This added to the already large volume of purchases being made the Wall Street Bets group and the price continued to rise even faster. Then people all over the country heard about this movement and decided to join in, buying Gamestop at whatever price they could get it at. This is a dangerous game and many of them knew they could lose money doing this. However, there were thousands of comments online that the people need to stand up to the hedge funds. To make a point that we the people will not be manipulated by large institutions and hedge funds anymore.
During the height of all this purchasing, the hedge funds had enough. They told Robinhood, the trading app of retail investors, to halt the buying of these stocks but continue to allow the selling. Hedge funds had the power to do this because, as it turns out, they owned a portion of the company. What also became apparent was that the large institutions have been using the data from Robinhood to make a profit from retail investor trades. Naturally, many people were upset and believe that there needs to be some new rules moving forward to make things more fair for general public investors.
There are a lot of questions being asked such as is this movement by Wall Street Bets considered market manipulation? Should short selling be allowed? It’s an interesting concept because it does not exist anywhere other than the stock market. You can’t sell a car before owning it. You can’t sell a television or refrigerator before owning it. So why should we be able to do it with shares of stock?
This whole fiasco also opened up discussion about the future of Wall Street. Is there another venue for investments that may be better for the public? A platform where the assets are truly traded freely and there is no institution overwatching the transactions. One candidate for this is cryptocurrency. Many people on the internet claim that they feel safer with their money in cryptocurrency because it is a decentralized network, not able to be manipulated by the government, large institutions, or hedge funds. There is also the argument that if people lose trust in the banking system and stock market, that they may become a thing of the past. As the gold standard and use of tangible money are starting to fade away, cryptocurrency may provide an investment like electronic gold and electronic transactions that will be more efficient than current methods. If there is a large movement into cryptocurrency from investing in traditional stocks then we could potentially see these currencies skyrocket in value.
Financially, a cryptocurrency market boom would be great, but it is also what people are fighting for. Freedom and equality when it comes to investing. The large institutions and hedge funds have a large advantage when it comes to trading in the traditional stock market. Cryptocurrency would be a fresh start where all investors have an equal chance to make significant returns on their investment. I think last week’s events with these nostalgic companies was the exclamation point on this underlying issue. It has showcased the importance of truly free markets and equality for every person. Would you consider cryptocurrency a useful form of currency in the future? Would you invest in it? Why or why not?
This whole fiasco has brought up many points about investing that were previously not addressed. I anticipate that there will be changes to the stock market to prevent this from happening again. However, I feel that there should be less restriction on trade. The market is supposed to be a free market that is based on demand of who wants to buy at certain prices. This also brings up new opportunities for teams. If such a powerful movement can be formed through a reddit forum, can this teamwork and leadership style be harnessed easily through the internet? I think that these events have proven that teamwork may be even stronger in an online format. Teams have a tradeoff of quality and quantity. Too many members and the quality of the team starts to fall apart. However, in the instance of these stock market events, a high quantity team all working toward the same goal was able to achieve success. Similarly, a quality team with 3-10 members can benefit from this online platform. For example, members will be able to get more done at home and then join meetings. It adds more flexibility to their schedule. Leaders can also benefit from this online platform because their messages are now received in video format as well as text. In the workplace, face to face meetings occur but team members may forget or not be paying attention while the leader is speaking. If this occurs and the message is in an email or written format, the team member can go back and look up the needed information. Do you think that the online platform will prove to be more efficient than face to face in the workplace? If so, do you think some companies will continue with working remotely even after the quarantine is over?
-Andrew Quinlan, D.O.