It might be-or it might simply be that different people have different priorities. To an external observer, the activity looks irrational and preposterous. A stock or asset might be bought as a sign of allegiance, a way of flagging one’s belonging to a particular group or they might buy it because it has a funny name or as part of an absurdist caper, or simply to partake in some kind of online flash mob. Where traditional investors supposedly decide which assets or stocks to trade based on a company’s growth prospects or other market conditions, meme financiers-most of them small-time investors-make their investment on the basis of other considerations, which can vary wildly. Call it, if you like, the rise of meme finance. “They didn’t seem to be buying it just to hurt somebody else.” What happened in January 2021 was not simply a rebellion against Wall Street-it was something else. “They didn’t just drive it up and then dump the stock: they were actually holding it for quite a long time,” Pedersen says. A lot of those seemingly crusading investors were not dumping the stock at the end of the ride, as one would expect from predators ready to collect their loot in fact, they were clinging to their GameStonks. When Lasse Heje Pedersen, a finance professor at Copenhagen Business School, researched the GameStop incident, he noticed something unexpected. From high on his Twitter perch, Tesla and SpaceX CEO Elon Musk approvingly posted “ Gamestonk!”īut the short squeeze narrative only explains so much. It worked: Some hedge funds did lose a lot of money, and the craze led Robinhood and similar apps to introduce restrictions on GameStop trading. That would happen via a devilish shuffle called a short squeeze: sending a stock’s price so high so swiftly that those shorting it decide it is time to buy it before it soars even more-a rush that in turn forces the price even higher. Screeds on r/wallstreetbets defined the motive of these investors’ trading: to give a beating to the hedge funds that had been betting against GameStop’s stock. The event sent shockwaves across the world’s trading floors, made headlines, and caused a lot of general bemusement. Despite the ailing video game retailer’s dubious fundamentals, they catapulted its price from $17.25 at the beginning of the month to over $500 by January 28. Last January, a growing group of retail investors congregating on a subreddit called r/wallstreetbets took to the zero-commission trading app Robinhood and bought stock of GameStop en masse.
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