As far as what I was expecting to see in 2021 in the 'batshit mental' column, a coordinated attack by Reddit on Wall Street didn't really feature. But that is exactly what has happened. To understand the madness of the last few weeks, you need to understand the idea of a 'short position' (commonly known as shorting).
Investors who take a 'short position' will benefit from a stock losing price over a short period of time, rather than the longer game of buying stocks low and selling high.
Simply put, shorting works like this. You borrow ten shares from another investor, on the understanding that you'll give them back. Each of these shares are worth £10. You sell these shares, knowing that selling shares can make the price drop. You now have £100. The price does drop, and the shares are now worth £5 each. You buy ten, then hand them back to the investor you borrowed from. You've made £50 profit.
But it's not like anyone can just borrow huge amounts of stocks - doing so is the province of Wall Street's elite - investors and hedge funds with significant financial backing. And so it was with Gamestop stock, or so it was thought. Financial powerhouses like Melvin Capital and Citron Capital all took short positions.
Enter stage left, Reddit. More specifically, r/wallstreetbets
Wallstreetbets - where users trade their thoughts, tips, successes and failures, spotted an opportunity. And so they bought, and gamestop stock rocketed. From sub-£20 at the beginning of January, to over £340 at its peak, Reddit waged war on Wall Street.
Even Elon Musk got in on the action, tweeting 'GameStonks' in apparent support for wallstreetbets. According to analyst firm S3, hedge funds have lost over $5bn. It has caused investing companies to call for regulation on the grounds that what wallstreetbets did was effectively stock manipulation. Although, I'm not sure what shorting is if it isn't manipulation in its own right.
When us mortals trade stocks, we are endlessly warned that investing carries risks, that we may lose everything, that the mass-buying power of large companies may cause stocks to do things we didn't expect. It's strangely satisfying to watch hedge funds realise that they, two, are mortal.
If Wall Street has learned anything from this, its that Gamestop never trades at reasonable prices...
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