Reddit's AMC, GameStop surge happened because of anger over Wall Street

Commentary: The gains are rooted in disdain for existing financial institutions, tapping into the same emotions as the Occupy Wall Street protests from a decade ago. And institutional investors are freaking out.

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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Roger Cheng
5 min read

There's more to this GameStop run than money. 

Sarah Tew/CNET

Redditors, individual investors and GameStop fans who've climbed aboard the video game retailer's surging stock have a lot to cheer about. Shares, after all, have catapulted to more than $320 from $17.25 at the beginning of the year, a surge that's creating a lot of paper millionaires. But make no mistake, the movement driving this rally isn't about savvy financial tactics or good will for a once-beloved retailer and strip mall fixture. It's about righteous anger. 

When the Reddit stock trading community WallStreetBets kicked off a coordinated effort to drive up GameStop's stock, part of the appeal was the idea of devastating short sellers -- investors who place bets on a stock's price going down -- and by extension the broader financial institution. GameStop was a particularly attractive target because it was the most heavily shorted stock. But this is as much about making money as it is, as one Redditor put it, making it so "the old guys drown in their tears."

The collective effort has proven successful partly because it taps into the same kind of frustration and stick-it-to-the-man sentiment that drove the Occupy Wall Street movement, which kicked off nearly a decade ago as a reaction to the extreme wealth of the "1-percenters" versus everyone else. That sentiment holds the same power 10 years later.

"In one sense, this is 'Occupy Wall Street' via the trading desk rather than from Zuccotti Park," said David Kirsch, a professor at the University of Maryland's Robert H. Smith School for Business. 

The only difference in this case is the 99-percenters are reaping the massive gains while Wall Street titans are seeing a genuine upheaval of the norms of investing. You're not going to see protestors huddled in tents or holding up signs. Beyond GameStop, BlackBerry, AMC Entertainment and other former stock market has-beens are seeing big gains, if not as dramatic. Stock market analysts are clueless as to what this all means and where these stocks go. 

"Nobody cares what a sell-side analyst says right now," Michael Pachter, a longtime video game industry analyst at Wedbush Securities, told my colleague Ian Sherr. He characterizes the run-up in share prices as a Ponzi scheme, in which new investors are recruited to unknowingly fund fake returns for previous investors, making the investment appear legitimate.

Make no doubt about it: The spike in GameStop shares is highly unusual. But the effort behind it isn't. It's the latest example of how an online community establishes momentum through a shared mission. We saw it take a frightening effect earlier this month with the storming of the US Capitol building after weeks of online chatter questioning the legitimacy of the election, capped off by a live speech made by President Donald Trump. 

This stock activity doesn't compare to the treasonous assault on democracy, but there is a common through line with not just the DC riot but also the hacktivist collective Anonymous, Bernie Bros and even baseless conspiracy theory QAnon. These extremely disparate groups all harness the idea of fighting against a corrupt system that you feel is screwing you over. They tap into the anger and frustration that comes with that mindset. In most of those cases, the sentiment is fueled by the insular culture of message board interactions, complete with its own lingo, a trend that has helped spark the rise in extremism in this country.

That notion cropped up again once Robinhood, TD Ameritrade and others put restrictions in place that made it tougher or outright impossible to purchase GameStop's stock, alongside other "meme" stocks like AMC. The restrictions caused wild swings in the share prices and sparked cries of outrage from individual investors, fueling the sentiment that Robinhood and others were protecting hedge funds exposed by their short positions. Robinhood allowed "limited buys" on Friday, but the damage was done: the Securities and Exchange Commission said it would look at the situation and angry individual investors savaged the brokerage firm. 

Protestors, meanwhile, showed up at Wall Street once again, harkening back to the Occupy movement from a decade ago. 

But there was ugliness on both sides, an unsurprising development given that Reddit channels the same unbridled energy that anonymous message boards do. Andrew Left, founder of investment newsletter Citron Research, had his personal information shared by angry traders, who texted him and his two children, according to The Wall Street Journal

One poster on Reddit characterized the push to propel GameStop as "a war" in a comment that was later taken down. Another Reddit post breaks down in excruciating details the squeeze that short sellers and investment firms are feeling. "This is their armageddon," it says. Those were the more polite things they said. 

Ugliness aside, the key question is whether this is a fluke or a true disruption of the financial system. Will this tear down the practice of shorting a stock, or at least have short sellers looking over their shoulders for another GameStop-like run that would decimate their holdings? Or is this the way a growing group of mostly young people consume financial information and turn investing into a game?

"We are seeing that 3 million small investors in a Reddit forum, when acting in a coordinated fashion, can seriously distort regular price movements," Kirsch said.

The truth is things have already changed. The popularity of apps like Robinhood, which has gamified investing, and the fact that millions of people are locked in their homes with little else to do, has changed the complexion of stock trading. 

Billionaire tech investor Chamath Palihapitiya said on CNBC that the Reddit rebellion against the Wall Street establishment represents a fundamental shift in philosophy. "Instead of having 'idea dinners' or quiet, whispered conversations amongst hedge funds in the Hamptons, these kids have the courage to do it transparently in a forum," he said. "What it proves is this retail [investor] phenomenon is here to stay. There are 2.7 million people inside WallStreetBets. I think they are as important as any hedge or collection of hedge funds."

But the proliferation of casual investors jumping onto this rocket ship also raises the question of who gets burned when it inevitably crashes. GameStop faces fundamental challenges as a business -- have you been to a strip mall recently? -- and at some point its stock price and market value will slam hard into reality. 

GameStop backers got a little scare after the WallStreetBets subreddit was briefly locked down and its community on Discord was banned, causing shares to plunge in after-hours trading on Wednesday evening before eventually settling back to its closing price in a dramatic whipsaw.

Until GameStop crashes, Redditors continue to cheer on the dismantling of traditional investment institutions. The Occupy Wall Street protesters are getting exactly what they wanted, just a decade later.