The stock market is deemed an important and sacred aspect of our economy by both our news media and governmental figures. Most of us have been confused by the jargon that surrounds the stock market after hearing some people explain it as though it is a grandiose system, while in reality, they too are probably regurgitating the same information that was forced upon them. The popularity of investing has increased vastly within recent years due to the emergence of online trading apps, creating a new niche within our media about trading and investing for retail investors. In the past year alone, retail trading volume increased by 25 percent, while in 2019 it grew by only 10 percent, leaving many newcomers looking for mentors. Many of these retail investing mentors live on YouTube and TikTok, simply marketing stocks they have personally invested in or trying to refer people to their own programs or accounts, all while selling the idea that they can help the newer investor reach true wealth through their personal investing practices.
The grim reality of the investment market is that retail investors are fighting an uphill battle. This battle is embodied by the common saying that’s heard by investing groups: the “90-90-90 rule.” This means that within 90 days, 90 percent of new investors will lose 90 percent of their money. Wall Street investors wield “smart money,” which are investments which influence corporate strategy, and retail traders provide “dumb money,” acting almost as siphons of free money. Due to large amounts of capital and interconnectivity between hedge funds for Wall Street, these investors are capable of bending the market into their favor to acquire more wealth from retail investors. For example, the richest 10 percent of households own 84 percent of the total value of individual stocks in 2016. With this sheer size, they are able to minimize our impact in the stock market.
That power dynamic within our stock market has been put to the test quite recently, all due to an elaborately masterminded plan by a Reddit forum called r/WallStreetBets. Particularly around Redditor Keith Gill, behind the name of “DeepFuckingValue,” who originally bought $53,000 worth of GameStop stock back in June 2019 when shares were around $5 each. After simply sharing his large investment on the subreddit, people began to see that GameStop was heavily undervalued, and their financials, on paper, were positive. Upon the other Redditors conducting their own research, they also found that GameStop was being heavily shorted by a large group of firms trying to drive down GameStop’s stock price. As of Jan. 22, GameStop’s float had been shorted 140 percent of the company value, which led to an over-shortening that could be easily exploited. The support of the stock rose within the WallStreetBets forum. By late 2020, the stock had surpassed its pre-collapse value of $16 and continued to skyrocket as more and more people bought into the stock, including celebrities such as Elon Musk, eventually skyrocketing the price to over $350 a share on Jan. 28 of this year.
In light of the record highs of GameStop, Melvin Capital, one of many hedge funds that had been short-selling GameStop stock, declared bankruptcy just to be bailed out by investors and business magnates. Soon after, many Wall Street reporters went on television to attack WallStreetBets, arguing that retail investors are not equipped to do this kind of trading and they are essentially cheating. One reporter, Jim Cramer, implied that this is market manipulation and attacks the sanctity of the stock market. What Wall Street does is the same as what WallStreetBets does — the only difference is Wall Street does it within the confines of their ivory towers, among themselves. The numbers of people on the forum rapidly increased, while other stocks popped up trying to ride on the rocket. While more and more people tried to join the movement, many online traders started to experience difficulties, halting trades on GameStop and many other apps. One of the first apps to stop was Robinhood, the most popular retail investor application, which stopped trades and only allowed for sales of stock. People were furious and claimed that Wall Street simply wishes to keep investing in a way only profitable for themselves. Many traders spoke about the impact of the 2008 economic downfall that ensued many of their families’ crashes with the stock market, and blamed the hedge funds for their part in the exploitation of people’s livelihoods while never acquiring the financial difficulties that came from the crash. This led to many shareholders claiming to never sell, calling their stock “diamond hands” for their durability and value, nodding to the aspect of poker and the gamble of the market. For some time, the humor of the WallStreetBets was capable of beating the cynicism of the real world. The recent approach by these Redditors seems to attack the very principles of the stock market, all based upon the jokes and memes surrounding the real data, and is almost mocking the importance of the market. But in the end, even a powerful surging wave must fall.
Now, the stock of GameStop has fallen down to well below the price of $100. Many of the people that bought GameStop and other stocks close to the peak feel cheated out of bigger promises. Some hedge funds and individuals believe the once in a lifetime opportunity to fight Wall Street has now passed and still some continue to hold the stock, refusing to sell, claiming that it will surpass its previous highs and that they are willing to lose it all just to send a statement. At the very least, the retail traders have proven how the rules of the stock market are determined by those in power or those who carry high stock volume. Perhaps this period of time was simply an anomaly disrupting the status quo, but it could be a reminder to just whom the market responds. Perhaps we ourselves could dictate the market if we were thoughtful and organized in our approach. The number of retail investors are rising, and in time they might overpower the hedge funds. WallStreetBets still goes on, some still believing their goal is not far and that despite the odds against them, they could still fight.
Akshay Kumar is a junior majoring in economics.