So you probably already know what the top story I’m going to be covering is because it’s been the top story all week — GameStop. It’s a long and important story, and I’ll try to keep my other sections short to balance things out. But before we dive into the facts — the millions made and billions lost — I just want to point out one key thing. When they band together, retail investors can become a force to be reckoned with. And that’s the power of the crowd.
The Business Buzz
Talk about the short end of the stick. So if you want to get really technical, the GameStop squeeze has been building for around two years. But I think enough happened just this week that we can mainly focus on now. If you do want a better understanding of how the GameStop mania built up, this Bloomberg piece does a nice job of laying out the history that led us to this moment.
So let’s break this crazy investment saga down into its key parts. First up — Reddit. Or more specifically, the Reddit forum called WallStreetBets. It’s pretty much exactly what it sounds like — an online forum where users discuss various stock trading opportunities. But one major theme — and rallying cry — is the image of individual investors fighting against hedge funds and highly public traders, such as Andrew Left. In general, forum members take a derisive view of wealthy investors who use short positions to make large amounts of money. And after multiple users put forth analyses that suggested the number of short positions held in GameStop was far beyond reasonable, an idea began to form. If enough WallStreetBets members invested in GameStop to drive the price up, they could cause a squeeze that would seriously injure the hedge funds and other investors betting against the video game retailer.
It took time for the idea to grow. But grow it did, until last week things finally came to a head. Which brings us to the next big part of this story — Andrew Left of Citron Research and Melvin Capital. Left is a well-known short seller in the investing world. And Melvin Capital is a hedge fund. What both have in common is that they had made significant wagers that GameStop shares would drop in value. Those short positions have come back to haunt them this week. Both Citron and Melvin have closed their short positions and suffered major losses doing so. Citron has a loss of 100% on its GameStop position according to Left. Melvin Capital is reported to have lost about 30% of its value — the firm started the year with $12.5 billion in assets, just to put that into perspective. All told, by Wednesday more than $20 billion had been lost by investors with short positions in GameStop.
And that’s because GameStop’s shares rose from around $18 at the start of the year to more than $300 now. It’s become one of the most traded stocks ever. Which is why when trading app Robinhood started limiting investors ability to trade in it, users got pretty angry. On Thursday, Robinhood restricted transactions for trades in not just GameStop, but also in other WallStreetBets darlings like AMC and Koss Corp. It also raised the margin requirements and threatened to close out some users’ positions if it looked like the investor didn’t have the money to back up their position. Robinhood CEO Vlad Tenev denied that the brokerage firm’s moves were driven by hedge funds or liquidity concerns. Instead, he cited SEC capital requirements and claimed regret for limiting the actions of individual investors. But Robinhood wasn’t the only firm to take limiting actions. TD Ameritrade and Interactive Brokers also restricted the ability of users to trade in GameStop.
And those restrictions drew the attention of the Senate Bank Committee and the SEC, as well as numerous politicians. While there’s little doubt that GameStop’s shares are overvalued right now, this saga has definitely been a learning moment for Wall Street and investors everywhere. The power of the crowd cannot be denied. Short positions are risky — a sentiment that was viewed as common sense but which has been powerfully proven this week. And we could see new regulations about when a brokerage firm can or can’t limit investor actions in the future.
A historical moment that doesn’t involve GameStop. The stock market craze wasn’t the only thing to make history this week. Rosalind Brewer is set to become the only black woman to run a Fortune 500 company at this time. Brewer will leave her position at Starbucks to become CEO of Walgreens. The drugstore chain is facing a major challenge as it prepares to ramp up its COVID-19 vaccine rollout. And it’s betting that Brewer is the right person to get it through the task with flying colors. Brewer is credited with bringing discipline to Starbucks’ operations — something Walgreens is in need of after being accused of unnecessary bureaucratic delays as it began administering vaccines. Brewer will be the third black woman in history to be the CEO of a Fortune 500 company.
The Private Market
The sequel to Shark Tank. Lauren Simmons made history in 2017 by becoming the youngest woman trader — and the second black woman trader — at the New York Stock Exchange. She was 22. Now, she’s creating a new reality tv show — aptly named Going Public — centered around companies that are preparing to go public on the stock market. Much like Shark Tank, the show will be focused on companies that are looking for investors. Unlike its predecessor, Going Public is meant to give everyday Americans a chance to invest, rather than big name VCs. The show will air on Entreprenuer.com.
If you can’t join ’em, fund ’em. A couple of weeks ago it was revealed that Vias’s planned acquisition of fintech startup Plaid was being called off. The Department of Justice blocked the deal in November of last year, and Visa finally decided that the suit wasn’t worth it. Plaid doesn’t seem to be struggling though. The startup announced the launch of a new incubator this week. FinRise will focus on fintech startups that are led by BIPOC founders — black, indigenous, and people of color founders. It will be a nine-month program tailored for companies that are between the stages of post-seed and Series B and that have a product in beta.
The Fun Stuff
What’s in a Twitter handle? For a point of brevity in the action-packed GameStop saga, consider this. The Twitter account for the World Wide Robin Hood Society gained thousands of new followers this week due to its nifty handle of @robinhood. The organization went from 350 followers to more than 5,000 — even after it clarified that it had nothing to do with Robinhood the app. It’s a non-profit that works to promote the legend of Robin Hood and his moral banditry — sans reenactments or cosplay, sadly.
Wallstreet has Morningstar, S&P, and Bloomberg
The equity crowdfunding market has Kingscrowd.
About: Aryelle Young
Aryelle Young is a published writer and editor with experience across industries. She has worked with an independent publishing company and as a proposal writer for a government contractor. Her original work has also been published in various journals and one short story collection. At KingsCrowd, she strives to provide insightful and actionable content for all readers. Aryelle graduated with a Creative Writing degree from George Mason University.