Populism sweeps Wall Street

Author: Ben Mezrich, Source: Carbon Chain Value

For a long time, in the vast ocean of the stock market, retail investors seem to be able to only play the role of "small shrimps". Facing the powerful financial institutions "crocodiles", their existence is like leeks, born to be cut.

However, in 2021, an earth-shaking "GameStop incident" changed the rules of the game: retail investors in the US stock market united and successfully squeezed out the big shorts on Wall Street, making professional financial institutions taste the bitterness of failure.

In May 2024, the man who once set off the "Wall Street War", "super retail investor" Keith Gill, will come back after three years of silence. What kind of storm will he bring?

Let us follow the famous narrative fiction writer Ben Mezrich to review the "GameStop Incident" and learn about the story behind the small retail investors' counterattack on Wall Street shorts.

United, retail investors want to counterattack

The story starts with a physical game product retailer called GameStop. This 35-year "long" history, which once owned more than 5,500 stores and was once a household name, has entered the sunset under the impact of the Internet. Its own operating problems have also made it shaky. GameStop stock (GME) once fell to $4 per share, and people called it a "junk stock." But even if the company is on the decline, it still has its own diehard fans to support it.

As an American who grew up in GameStop, Keith Gill loves it deeply. At the same time, as an amateur financial enthusiast, he has also done a lot of research reports and sincerely believes that the company is seriously undervalued. In July 2019, this so-called "amateur" bought a large amount of GME with his passion. Not only did he buy it himself, he also posted a long article on the WSB (WallStreetBets) forum, attaching his own investigation report and account screenshots. In addition, he opened a YouTube account under the name of "Roaring Cat". Every day in the dead of night, he huddled in the basement of the rented house to record financial science videos.

Keith is not fighting alone. In 2020, Ryan Cohen, an e-commerce genius who once subverted the pet retail market, also bought a large amount of GME, which prompted its stock price to rise. This also gave Keith great confidence. He began to use the "YOLO" method (betting as much as possible on a company's stock) and invested his life savings in GME. The videos posted on YouTube also changed from a few minutes to a live broadcast of several hours, talking about GME and recommending GameStop stocks to people.

Soon, retail investors gathered on the WSB forum heard the news, and more and more people watched his live broadcast, and the discussion under the post became more and more lively. For ordinary people who are struggling in life, making large profits through stocks is what many people dream of. The screenshots Keith posted on the post show that he has earned more than $100,000 in profits with only $5,300 in principal. Retail investors began to move.

Single mothers raising two children alone, ignorant college students who are about to graduate, newlywed mothers whose plans were disrupted by the epidemic... Countless such ordinary people began to buy GME at Keith's call. For them, perhaps at the beginning they wanted to make a profit to change their embarrassing situation, but as the situation gradually fermented, this was no longer a simple matter of a stock. The tragedy of the 2008 financial crisis is still vivid. The greed of financial giants and institutions has bankrupted countless American families, while they continue to live a life of luxury with government assistance. The "GameStop Incident" is an adventure and declaration of retail investors fighting for themselves, for their class, and for a better life.

Because the big shorts are clamoring.

Wall Street: Everything is under control

The big shorts on Wall Street who shorted GameStop are led by Melvin Capital. Yes, this fund company with a remarkable record targeted GameStop as early as its establishment in 2014, and has always been committed to shorting it to make high profits. Its founder, Gabe Plotkin, is one of the most powerful financial industry practitioners on Wall Street and once worked for Steve Cohen's SAC Capital Advisors. In his view, shorting a company is very reasonable and "within all the rules of the financial system", so even if they shorted GameStop's stock by 140%, they could still brazenly say that they did not manipulate the stock.

Indeed, for Wall Street giants, in the field of finance, they are the rules themselves. So they are fearless and arrogant. The well-known Citron Research even tweeted that it would start a live broadcast, publicly calling retail investors "fools" and saying "We know shorts better than you do, and we will explain." As a result, it was fiercely attacked by retail investors and had to cancel the live broadcast.

Wall Street giant Castle Investment also suffered losses in this short squeeze war, but it is obvious that these Wall Street financial giants will find ways to prevent retail investors from resisting through nepotism and favoritism. For example, closing the WSB forum where retail investors communicate with each other, and manipulating Robin Hood, the software used by retail investors to buy and sell stocks, so that they can only sell but not buy. An epic short squeeze had to come to an abrupt end.

As Ken Griffin, CEO of Citadel Investments, said, "Rules are not there to protect people, they are there to protect the system." And once you become the system, the rules will protect you.

Musk is indignant

As a capital giant, Tesla (TSLA.O) founder Elon Musk has a different stance from Wall Street. The reason is that Tesla was ambushed by Wall Street short sellers as early as 2012. At that time, these short sellers used their positions, negative reports and incited public unrest to drive down Tesla's stock price, intending to swallow this piece of fat meat. But Musk and Tesla survived. So he, like the netizens in the WSB forum, had personally experienced short selling and hated short sellers.

With old hatreds and old grudges piled up, Musk angrily shared the same hatred with WSB netizens, and deliberately tweeted GameStop misspelled as "Gamestonk!!" (American stockholders are accustomed to using Stonk to describe wrong, exaggerated or funny investment decisions, such as buying high and selling low on a certain stock), and attached the address of the WSB forum to the tweet, and pushed it to his 42 million fans, triggering an explosion of public opinion.

 The game between retail investors and Wall Street has escalated to a fever pitch, and the price of GME has fluctuated like a roller coaster. The big shorts once thought they had a sure win, after all, "we are professionals"; and the retail investors are also united, and they will never repeat the mistakes of 2008 when their entire families went bankrupt while financial institutions were unscathed.

The result of the two-phase struggle is that the price of GME is like a roller coaster, with a minimum of $8/share and a maximum of $483/share. Melvin Capital vomited blood and withdrew from the battlefield; then the Wall Street giants united to ban retail investors from buying stocks and restrict forum speeches, etc. A series of operations made the GME stock price fall back to $325/share. On February 4, 2021, the stock price even fell to $54/share.

This epic short squeeze that attracted national attention eventually attracted the attention of the U.S. Congress, and many people involved in the matter were asked to attend congressional hearings to defend themselves. After a tense and exciting game, only a sigh was left.

To be continued

Three years later, on May 13, 2024, Keith Gill tweeted again, with more than 6 million views in 5 hours and more than 7,000 comments in 10 hours! GameStop's stock price surged after the opening that day, rising by more than 110% in half an hour, triggering six circuit breakers during the trading session.

On June 2, Keith Gill posted on the WSB forum, and the screenshot showed that he had bought 5 million shares of GameStop at $21.27 per share, with a total value of $115.7 million. Will the return of "super retail investors" to the stock market set off a new storm?

Populism sweeps Wall Street

Author: Yan Yi, Postdoctoral Fellow, Postdoctoral Research Station, Institute of Finance, People's Bank of China

"Even the smallest force, in unity, can shake the wheel of the market."

In early 2021, in the winter that will be remembered by history, a financial storm called "retail investors vs. institutions" - the GameStop incident swept the world, and then unexpectedly developed into a gripping movie adaptation story, but the truth hidden behind it and the emotions that erupted are far more complicated than the "farce" on the surface.

The protagonists of the incident are not retail investors in the traditional sense, but a group of investors from various states in the United States with different professions, ages and backgrounds. Among them, some are fledgling college students with curiosity and dreams about the financial world; others are veteran investors who have been through many battles and are accustomed to the ups and downs of the market. But this time, they all gathered together because of a common belief - to challenge those seemingly invincible financial institutions.

In fact, there are many institutional investors behind the scenes of this battle. They cleverly disguised themselves as retail investors, using their huge capital advantages and information asymmetry to seek their own maximum interests in this game. However, when this storm was widely spread by the outside world in the name of "retail investors vs. institutions", people were more attracted by the "confrontational spirit" that was indomitable and dared to challenge authority.

This spirit, like a clear stream, penetrated the iron wall of the financial market and resonated with spectators around the world. In finance, a field traditionally dominated by big players, the participation of the people always seems so weak.

Since the 2008 financial crisis, as ordinary people have a deeper understanding of Wall Street's manipulation methods, they have begun to be angry about those complex trading strategies and discriminatory terms, but often feel powerless to change. But the emergence of the GameStop incident seems to have opened a window for them, allowing them to see the possibility of a head-on confrontation with institutions.

In this battle, retail investors are no longer spectators. They use the power of social media to coordinate their actions and advance and retreat together. They study the market and analyze data. Although the process is difficult, every time they see institutions suffer heavy losses due to their efforts, the sense of accomplishment and joy is enough to offset all the fatigue. More importantly, they have proved that even the smallest force, with unity, can shake the wheel of the market.

The GameStop incident is not only a contest between money and power, but also a hymn to faith, courage and unity. It tells the world that in this world full of uncertainty, as long as there is love, dreams and persistence in the heart, nothing is impossible. And this spirit will always inspire those who come after them, allowing them to continue to pursue their own heroic journey in their respective fields.

In the highly interconnected world, the dissemination of knowledge is no longer restricted by geography and time, and the sharing of professional skills has become more convenient than ever before, which has paved the way for countless dreamers to succeed. It is in this context that the Internet brokerage Robinhood came into being. It is like a bright new star, illuminating the sky of the financial field and quietly rewriting the rules of finance.

The birth of Robinhood carries an almost revolutionary ideal - "to make financial operations popular". It abandons the cumbersome intermediary links in the traditional financial system, directly connects retail investors with the market, and vows to break the old order of "middlemen making a profit from the price difference". From its name, people can get a glimpse of the ambition to "rob the rich and help the poor". The founder of Robinhood once declared on Twitter: "We want everyone to be able to trade, regardless of their wealth." This sentence, like a breeze, blew away the haze in the hearts of retail investors and inspired their enthusiasm to participate in the financial market.

With the rise of Robinhood, a "civilian revolution" in the financial world has quietly emerged. Many securities dealers felt the pressure and followed suit, launching fee-free trading platforms to lower the threshold for operation, allowing more ordinary people to step into the stock market, a field that was once out of reach. For a time, the retail investor group in the United States grew rapidly. With their desire for wealth and yearning for freedom, they poured into the market and became a force that cannot be ignored.

In this revolutionary wave, the Wallstreetbets forum became the spiritual home of retail investors. Although it is full of all kinds of posts, from water posts to in-depth analysis, it is this mixture of good and bad that breeds infinite possibilities. There are many experienced financial analysts who have worked on Wall Street in the forum. They anonymously express their opinions and share strategies here, using their professional knowledge to lead the collective actions of retail investors. When groups of retail investors work together to buy or sell in the stock market according to these strategies, they actually influence or even determine the market situation, which is undoubtedly a powerful challenge to traditional financial authority.

As the information gap gradually narrows, retail investors are no longer passive recipients, but begin to take the initiative to fight against those financial institutions that were once high above with their wisdom and solidarity. These institutions, which once relied on scale and favorable terms to call the shots in the market, are now facing unprecedented challenges. Those "financial migrant workers" who once despaired of the financial market have now transformed into a member of the army of free investors. They not only have professional knowledge, but also know how to use the power of social networks to exchange information and coordinate strategies with extremely high efficiency.

The GameStop incident is the climax of this "retail investor revolution". With their dissatisfaction with institutional exploitation and their desire for freedom, retail investors pushed the stock price of GameStop to an unprecedented height. They know that this battle may not be won, but they know better that it is a victory to create some chaos for those financial institutions that have long profited at their expense. When the stock price of GameStop finally fell back and the market rules once again showed their irresistible power, many retail investors suffered heavy losses, but they were full of pride and satisfaction. Because they have proved that "retail investors can fight against financial authority", this belief is like a kind of fire, which has been deeply rooted in their hearts.

Although the GameStop incident has ended, the impact it left is far from dissipated. It is not only a fierce contest between two unequal forces in the financial market, but also a victory of faith, courage and unity. For the retail investors who participated in it, they not only experienced the stock market for the first time, but also verified their self-worth and challenged authority. For Wall Street, this battle undoubtedly sounded a fierce alarm, reminding institutions that they must face up to the power of retail investors and re-examine the rules of the game. In the days to come, no matter how the market changes, the possibility of qualitative change shown by the GameStop war will inspire more people to move forward bravely and explore the infinite possibilities in the financial field.

In the vast sea of ​​the financial market, every major event is like a huge wave, which not only impacts the calmness of the market, but also profoundly affects the fate of every participant. From a series of financial events, it is not difficult to find that the problems that the market should reflect on are far more than just the surface, but should touch more deeply on market fairness, rule-making, risk management and other levels.

First of all, the discriminatory terms of the US Securities and Exchange Commission and brokers for retail and institutional investors are like an insurmountable gap that hinders the healthy development of the market. The existence of these clauses not only exacerbates the inequality in the market, but also makes it difficult for retail investors to move forward under the dual pressure of information asymmetry and unfair rules. Therefore, how to scientifically and reasonably define and adjust these clauses to ensure that all investors can compete fairly under the same rules has become an important issue that the current market needs to solve urgently. This requires re-examining the existing regulatory framework, strengthening supervision, and encouraging market participants to consciously abide by the rules and jointly maintain market fairness and justice.

Secondly, maintaining market fairness is not as simple as adjusting the rules. It is also necessary to establish a complete risk management mechanism to prevent extreme situations such as "brokers turning the table" from happening again. The GameStop incident exposed the fragility of the market in some aspects, and also made us deeply realize that only through efforts in many aspects such as strengthening supervision, improving market transparency, and improving emergency response mechanisms can we effectively reduce market risks and ensure the stable operation of the market.

Third, let's look at the short-selling mechanism in the capital market. Although allowing short selling of more than 100% of the stock market value has improved the liquidity and efficiency of the market to a certain extent, it has also provided a breeding ground for malicious short selling. How to effectively manage the risk of malicious short selling of listed companies while maintaining market vitality will become a common challenge faced by market participants. This requires the establishment of a sound short selling supervision system, strengthening the monitoring and punishment of short selling behavior, and guiding market participants to establish correct investment concepts and jointly maintain the healthy development of the market.

In addition, with the gradual rise of retail investors, how to prevent possible chaos in a market environment where retail investors and institutions are in confrontation and game has also become a problem we need to think deeply about. This requires, on the one hand, strengthening investor education and improving the professional capabilities of retail investors; on the other hand, guiding institutional investors to play an active role, by providing high-quality investment services, strengthening communication and exchanges with retail investors, etc., to jointly build a harmonious and stable market environment.

Finally, when the trend of "populism" finally blew into the financial market, Wall Street's traditional rules of the game have been difficult to adapt to the new market situation. Whether the financial market can withstand the impact of this change depends on whether it can adjust the rules of the game in time and adapt to market changes. This requires us to maintain an open mind, a spirit of innovation and a firm determination to jointly promote the sustainable and healthy development of the financial market.

In short, we can see from the GameStop incident that the development of the financial market is not a smooth journey, but a complex process full of challenges and opportunities. Only through deep reflection, positive response and continuous innovation can we move forward steadily in this magnificent sea.