Youth gone wild

"Boss screamin' in my ear about who I'm supposed to be
Getcha a 3-piece wall street smile and son you'll look just like me"

Skid Row - Youth Gone Wild (1989)

It's January 2021 and I was monkeying around minding my own business on the stock market when I started hearing about $GME and $AMC stocks being shorted ... on Discord. Mind that I don't use social media and I hang around on Discord and IRC just for the sake of getting extra information on game development and open-source projects.

Apparently the users from r/WallStreetBets Reddit forum "realized" that stock from GameStop ($GME) is being heavily shorted by hedge funds. That means that hedge funds are betting that the stock price will fall. On the other side the social traders (aka retail traders) bet on the fact that the stock price will rise.

Hedge funds ⬇️

They borrow stock now at 10$, sell it, purchase it later at 8$ and keep the difference minus interest and taxes.

Retail traders ⬆️

They buy the stock at 10$ and wait for it to reach 12$ and beyond and sell it and keep the difference minus taxes.

So there is a tension created between the two factions which, as social traders hope, can get the stock in a short squeeze situation where the stock price goes very high in a short amount of time. Apparently the rise in the cost of stock value is caused by the hedge funds as well, since they will try to buy stock as well to attenuate the impending loss.

Why has GameStop gone so high recently? analysis by Time better describes the situation.

This is an unique situation, although it has happened before (eg. VW squeeze) because of the actors involved and the advancements in stock trading tooling. Here are my special takeaways for you:

  • There were two songs that were created for this "special" occasion, probably by people from r/WallStreetBets entourage https://youtu.be/1P_YKwCQiik ; https://youtu.be/SEI2AY8viOY . The first song is a direct attack on Andrew Left which is a known short seller and the second song is "pirate sea shanty", a song that encourages people to hold their stock positions.

  • The WallStreetBets Discord server reached 250k registered users and was closed by Discord management. The channels were invaded by memes, emoticons, spam and long messages encouraging people to hold $GME, $AMC and $BB stock. The voice chat was extremely erratic, it sounded like a trading floor filled with young people mostly. People were repeating messages over the voice like: "AMC, AMC, AMC", "hold, hold, hold", at some point you were encouraged to buy and hold $NOK (Nokia) and someone kept playing Nokia ringtones. There was a rumor on the chat that Elon Musk will join the voice chat, at which point the entire server crashed.

  • A lot of jargon, new to me, was used in the chat area and in the forums. Most notably are the expressions:

    • Diamond hands - represented by these emojis 💎🙌 (:gem-stone: :raising-hands:) - a person who hold their stock without giving in the pressure of selling when the stock price is fluctuating

    • Paper hands - represented by 🧻 (:roll-of-paper:) or combined with :raising-hands: - a person who sells their stock in a hastily manner or doesn't have the ability to hold it through turbulent times.

  • The social traders are mainly represented by young people (the percent is unknown so far) with access to financial services apps that allow near-instant stock trading like Robinhood, eToro, Trading212, WeBull, Revolut, etc.

  • There were multiple times when the trading was halted by Nasdaq for $GME and $AMC. The mobile apps kept crashing when trying to buy or sell.

$AMC stock (Jan-Feb 2021)

$GME stock (Jan-Feb 2021)

$BB stock (Jan-Feb 2021)

We cannot imply the cost and the impact of social trading on the stock market, but what we know is that the movement was perpetuated by the young generations having access to trading apps on their phones and other devices. The motivation is not only "get rich" but also "us vs them", the "poor vs rich", "let's beat them at their own game" which are powerful slogans in the mind of the younger traders.

There is something both powerful and toxic about this behavior. Once again it was proven that the "Internet mob" can make you or break you. Depending on what side you're on.

Is this "Internet mob" comprised only by youth? Probably not, like any conventional mob, you also have agitators with an agenda, curious people, speculators of all ages, social justice warriors, etc.

The real question is where and what will you be when the disruptive youth crowd goes wild again?