The epic saga of GameStop, Redditors, and Wall Street is a love-hate triangle that has ushered in a crazy trading bonanza that mostly transpired at the end of January 2021, with some more spirited action in late February 2021 to date. “Restricted Trading! Class action lawsuits galore!” could be headlines of a tale as old as time, or bubbles of yore.
Many pundits think what’s happened to Blockbuster will happen to GameStop (GS) with many of its stores closing, though GS is trying to turn things around. While I wasn’t compelled to jump in on the trading [gambling] action, it was fascinating to learn about what was going on through Wall Street Journal and other sources.
“Many commentators, however, have drawn an incorrect conclusion upon observing recent events: They are fond of saying that the small investor has no chance in a market now dominated by the erratic behavior of the big boys. This conclusion is dead wrong: Such markets are ideal for any investor – small or large – so long as he sticks to his investment knitting. Volatility caused by money managers who speculate irrationally with huge sums will offer the true investor more chances to make intelligent investment moves. He can be hurt by such volatility only if he is forced, by either financial or psychological pressures, to sell at untoward times.” -Warren Buffett, 1987 Berkshire Hathaway Annual Letter
It’s as though back in 1987, Warren Buffett predicted what was going to happen in the WallStreetBets subredditor contingent vs Wall Street’s hedge fund “big boys” with his Berkshire Hathaway annual letter commentary on erratic behavior and irrational speculation. And how many retail investors were forced to sell because of brokerage firms like Robinhood curtailing buying of GameStop and other volatile meme stocks. And the hedge funds had to close their short positions earlier than they would have preferred. It looks like Keith Gill stuck to his investment knitting throughout the chaos.
I explain both short selling and a counter action, short sell squeeze in the context of GameStop stock chart examples. Short seller traders make money on the decline of a stock price. Their losses can be infinite if there are market participants buying the stock to cause the price to go up and thereby to cause a short squeeze.
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This was a retail revolution of investors who did fundamental analyses and made up their own minds to push back against the Wall Street establishment, according to Chamath Palihapitiya. He asserted that kids who grew up during the Great Financial Crisis (GFC) frequented GS and they witnessed their families losing their homes. People didn’t feel like the common people were helped out back then, per Chamath. He defended the Redditors in that they weren’t just ignorant people losing money, they fully knew what they were doing.
I created my own timeline of this epic saga, citing what many articles deem to have been the protagonist and antagonist of this story. They involve Keith Gill (aka Roaring Kitty on YouTube and DFV [abbreviated] on Reddit) and Melvin Capital Management LP (MCM).
I wanted to figure out how do we even know what the hedge funds are even invested in, or what their activities might be so I searched MCM on the SEC EDGAR page to yield some 13F infotable XML files. I realize that funds do not have to report their “short positions” on their SEC 13F filings, but these puzzle pieces still give some clues as to what funds have equity or other positions in. In any event, MCM had increased the numbers of puts they had on GS from June 30, 2019 to September 30, 2020. Thanks to a Roaring Kitty video, I found an even better source of identifying how much some companies were being shorted.
In my timeline, I chronicle how Keith posted many “GME YOLO updates” starting in September 2019 and how these posts became almost daily in January 2021 as events escalated into a flaming crescendo.
Noteworthy Events out of a Revolution Too Grand for a Simple Timeline (Glossary: Keith Gill = DFV = Roaring Kitty)
Jun 30, 2019: Per SEC EDGAR 13F, Melvin Capital Management LP shows Put options (1,800,000 in Infotable Prnamt column).
Sep 8, 2019: Reddit post where Keith Gill (DFV) sarcastically thanks Michael Burry and shares GME positions screenshot.
Sep 11, 2019: Reddit post Keith Gill (DFV) “GME YOLO update following the Q2 earnings report” – GME positions screenshot.
o2020 Year: Many more Reddit posts that contain “GME YOLO updates” screenshots showing DFV’s GME positions.
Aug 4, 2020: Roaring Kitty YouTube video post “5 reasons GameStop stock (GME) is a roach not a cigar butt a la Warren Buffett & could short squeeze.”
Aug 21, 2020: Roaring Kitty YouTube video post “The Big Short SQUEEZE from $5 to $50? Could GameStop stock (GME) explode higher?? Value investing!”
Sep 30, 2020: Per SEC EDGAR 13F, Melvin Capital Management LP shows Put options (5,400,000 in Infotable Prnamt column).
Jan 5, 11, 13, 14, 19, 22, 25, 26, 27, 28, 29, 2021: Almost daily “GME YOLO” updates. Price goes from below $50 to $300-500!
Jan 28, 2021: GameStop hit all time high $483 stock price while Robinhood and other brokerages halted continued purchases of Gamestop and other “volatile stocks” and Melvin Capital Management LP lost 53% of its investment value, closing its short position on Jan 27. Class action lawsuits filed against Robinhood for restricting buying, people could only sell at one point.
Feb 18, 2021: Congressional hearing on the incident.
GameStop’s stock price went from somewhere below $50 to almost $500 reaching $483 intraday on January 28, 2021 before the rocket ship fell back to earth. GS was being traded at 140% of its public float being sold short, meaning that hedge funds were trading on so much margin (borrowed money) — they had even been borrowing to sell short 40% more than had existed of GS’s public shares. Many of us know that MCM lost 53% of its investment value and had to raise money and people were angry at brokerage firms for restricting trading. Class action lawsuits followed and lots of gains and losses occurred all around.
This wouldn’t be an epic saga, however, without some heart-warming tales too! Some people were smart, made money, and paid off their student loans as one Redditor posted. Even Reddit rooted for the underdogs pursuing a common idea in a 5 second Super Bowl LV commercial ad on February 7, 2021. This can also be likened to voting for a mission with our money, as what many Redditors did.
Sadly, there’s not all puppies and roses at the end of this story, there’s also some congressional hearings, short term capital gains taxes, and regulatory implications to deal with.
Contrary to an article the Wall Street Journal published on February 12, 2021 entitled “Why Women Investors Won’t Embrace Stocks,” I actually think women are interested in investing if we take the time to evaluate companies’ fundamentals and determine if we can believe in them and want them to exist into the future. The article says women have tended to invest in real estate, cash, and bonds, and suggests women are afraid of investing in stocks. I think women already are investors, and they’ll continue to become better investors. It’s totally OK to sit on the bench when it comes to gambling with stocks. I have no qualms about missing out on the GameStop rollercoaster because I plan to stay an investor who sticks to my knitting and not get lured into massive speculative frenzy.
Let’s connect on Instagram: michellemarki! 🙂