The Reddit Generation Has Entered The Stock Market Game
American Consequences contributing writer Alice Lloyd sat down with some of the many involved in the recent GameStop short phenomenon to get to the heart of this new generation of traders…
Everyone wants a handle on the short squeeze movement, a new chapter in the so-called gamification of trading.
The effectively organized (but motley-in-spirit) mob manipulation of a sentimentally meaningful “meme stock” – storefront game retailer GameStop, beloved by all who grew up on video games – grabbed the world’s attention in late January. Small investors on WallStreetBets, an online forum focused on high-risk trades within the social media site Reddit, banded together and drove up the value of the store’s heavily-shorted stock, buying up shares and triggering a rush to buy more shares – at a big, fat, glorious loss for all those short-selling, fleece-vested, Fairfield-County-dwelling hedgies who never saw it coming.
Reddit, for the uninitiated, is a shadow world unto itself. I’ve heard it described as “Instagram for ugly people” or “Facebook for indoor kids.” Every esoteric and ordinary interest is represented there in some forum or other, but it’s perhaps more characteristically home to endless discussions of video games – and host to bottomless conspiracy theorizing.
Its communal sensibility runs deeper than other comparable social media sites – users are often, though not always, anonymous – and posts within the site’s many various subforums gain votes and rise to the top of the page as they do, based on the quality of their insight or how well their tone fits the subforums’ idiosyncratic humor.
In essence, a few influential users on WallStreetBets didn’t like the short selling of GameStop, and they decided to profit – slamming the shorts, and driving the price up – at the expense of those rooting against it.
Wall Street Folk Heroes
This is a story that begs to be mythologized… It’s not for nothing that the leading retail investing app Redditors use is called Robinhood. That’s Robinhood, as in Robin Hood, as in the anti-capitalist folk hero who stalked late-medieval Nottinghamshire armed with a bow, arrow, and silly hat… robbing the rich and redistributing their wealth to the poor.
But this Robinhood (the app, not the legendary bandit) bitterly betrayed the spirit its branding implies – or made a responsible call, depending whom you ask – and restricted shares of GameStop while its value was still on the rise. A congeries of class action suits and a congressional hearing, in which the Redditor who led the squeeze quoted sarcastic memes to the congressional record, came next with Robinhood’s opponents… alleging its too-cozy alliance with the Chicago-based hedge fund that owns most of its order flow, Citadel Securities. (Whether or not there’s actually anything untoward to that arrangement, Citadel Securities is a great name for a movie villain’s place of business, incidentally.)
Indeed, the real thrill of the short squeeze, explains writer Chris Arnade, is in the sensibility behind it. “They’re having fun,” he wants me to understand. “They’re mocking Wall Street, and they’re making fun of them while also doing what they do.” And, at least for a couple days in January, doing it better.
Arnade is uniquely positioned to characterize the mood of the moment: He has a deep bench of experience in finance, gaming, and authentically documenting otherwise overlooked aspects of the human experience. He wrote a compelling study of the GameStop saga at the height of its currency, lighting on the limits of America’s meritocratic promise. On a lighter note, he compares the Redditors’ attitude to the heroes of Caddyshack: “They’re not allowed in the club, but they’re going to make fun of the club – and win.”
He has a point… Whereas the archetypal uptight investor, aka the Caddyshack country club member, likes to invoke John Maynard Keynes who famously said, “The market can remain irrational longer than you can stay solvent” – to which the Redditors answer, in the form of an unrepeatably offensive meme which I’m about to repeat: “We can remain retarded longer than you can stay solvent.” Without endorsing their use of the outdated term to refer to people with intellectual disabilities, which is now considered a derogatory slur, it’s typical of such a self-consciously crass online community that takes perverse pride in its unpredictability, perceived nihilism, and supreme feather-ruffling power. As Arnade puts it, “They’re embracing being the bull in the china shop.” That or the gopher on the golf course…
A Viral Game
It helps that the pandemic has provided perfect fuel for such a playful, pirate-minded community to coalesce online. In what’s perhaps the perfect illustration of this movement’s timeliness, the three stimulus checks sent to all American adults earning less than $75,000 spawned a new meme on WallStreetBets. Posts about how – and how recklessly – traders on Reddit were investing their “stimmy” dominated the page the weeks these funds rolled out. It would be a narc-ish betrayal of the team spirit of the subforum – not to mention an unpopular post – if a user were to confess to setting aside their stimmy to pay for 2020 taxes, bills, necessities, or mounting debts. Better to stay in the game.
And what’s gaming got to do with it anyway? The way this generation that’s now seen as having joyfully slung-shot Wall Street in its smug face looks at the world as largely shaped by their experience of scoring points and taking down digital bad guys in the games they grew up with. But it’s not entirely clear that video games are to blame for these traders’ nihilistic, burn-it-all-down mentality. “Gamers look at trades like a blip on a screen, just a flashing thing on a screen,” Arnade tells me – but, he adds, that’s not necessarily a new point of view… “People have been treating it like a lie for a long time,” he says of the stock market’s relationship to real values. “The gamers just figured out the lie.”
The consequential reality of these trades and valuations has always been rooted in a type of gamesmanship, just one made real by enough people’s personal investment in its meaning. It only stands to reason that an up-and-coming group of gamers should so adeptly get one over on another – when the latter is, or was, complacently established in its mastery of the same it’s-worth-what-we-say-it-is arena.
One documentary about the GameStop phenomenon prominently features 20-year-old Shawn Daumer, who made just north of $46,000 off of GameStop in January – half a million at one point, he says, until he “got greedy.” Daumer let filmmaker Keith Elliot Greenberg and an attendant crew follow him around Valparaiso, Indiana where he grew up and now works as a real estate broker. They interviewed his mom and filmed him hanging out at the restaurant where he used to work.
He’s been quoted in the New York Times, where a mini-profile contrasts his quarter-million-dollar portfolio with his taste for Hooters wings. When Daumer and I talk, I’m surprised to find a humble Midwesterner and a careful student of conventional investing wisdom – not a sardonic Redditor, not one of those nihilists we’ve been warned about, and not even a garden-variety gamer.
“I tried to get my buddies from high school to do it way back when we were juniors,” he tells me, “And they all were bums!” Now, though, they’re beginning to understand the value of his advice. “It’s all, Dude we should have gotten in when you did, man. That could have been me.” With such a lucrative hobby and a career he finds fulfilling, the prospects of going to college or pursuing any kind of traditional career in finance don’t appeal to him.
Though he doesn’t directly cite Gordon Gekko and Jordan Belfort among his heroes, Daumer says he was initially inspired to pick up investing by blockbuster movies he saw about the thrills of finance when he was in high school: “I used to watch a lot of these movies, so sophomore year, I got myself a MarketWatch account. I was doing paper trading competitions and getting myself more involved in understanding these companies – and listening to podcasts, and watching Warren Buffett’s speeches.” The latter-day financial gurus – brash YouTube personalities – don’t appeal to him as much.
Daumer’s unpretentious Midwesternness – his distance from, and disinterest in, the excess of Wall Street life – makes him an appealing poster boy for the populist uprising and certain cinema-ready reading of the Reddit-GameStop phenomenon. Except for one problem: “I don’t play video games,” he tells me. “And I’m not a big Redditor,” he adds. “It’s more due diligence done by myself rather than seeing what some [jerk] on YouTube is going on about.”
And as for the subreddit the world is watching? “They’ve got 3 million new members, but people lose money every single day.” In fact, I theorize it could even be his high school friends’ devotion to gaming that held them back from seizing on his valuable advice. Daumer doesn’t go that far, but he entertains the analogy. “It’s like an addiction,” he says of his trading hobby. “They get excited playing video games – it gives them that dopamine. And it’s the same reaction with me when I’m trading.”
Dopamine Stock Tickers
Sensation-seeking is what the headshrinkers call this. Gaming, and even just the pace of mass media these days, programs out the modern brain to crave and expect more excitement. And more, and more… Addictive boredom-avoidance isn’t new, but according to psychiatrist and MarketPsych cofounder Richard Peterson, it’s a powerful force behind the WallStreetBet approach to the game. “You’ve got real money being made and lost, real consequences that feel emotional. Emotionally you’re engaged, you’ve got the physiological arousal of the ups and the downs,” he explains. “And you’ve got the risk, the real-life consequences of what you’re doing.”
The fun, in other words, is fully real. But so is the fear.
Peterson compares advice from bombastic YouTube gurus and rude meme-purveyors on Reddit to a radical form of participatory talk radio, or a type of professional sport you can play right alongside the team you’re rooting for. Yes, it’s like a video game, he says, but “people are playing the game alongside Dave [Portnoy].” (Portnoy just so happens to have risen to public prominence as a sports commentator with talk-radio-style bravado and now leads what Bloomberg calls “an army of day traders.”) There’s a generational divide here, in that “young people want the action, whereas the older generation listening to talk radio might be more comfortable sitting around complaining.”
The populism we associate with talk radio at its best, and the sense of belonging you get from rooting for your team, is alive in these traders’ experiences as well. You’re making the trades the gurus advise in the trenches winning and losing with a band of like-minded rebels: Redditors post their losses as well as their wins. It’s almost as though the losses, and not the wins, are what bind them together. The compulsion only grows stronger when you’re in it together with a crew, propelled by that fraternal loyalty and ancient associations with war.
“Young people want to feel the risk physiologically,” Peterson says, “because they’re used to that immersive video-game experience. But also because entertainment is more engaging with more shock, more screen frames, shifts faster.” On lockdown, one’s sources for stimulation are more limited than usual. And it’s not just lockdowns, the bull market is also largely to blame. Peterson predicts that once people start losing money, really losing, WallStreetBets will be a lot less fun as a venue: “People have taken risks and been rewarded, but when things start to shift, when you get to a nice, big sell-off, you may see less enthusiasm.”
If the wins dying down doesn’t deter the rebel spirit, a growing paranoia about double agents in their ranks might start to sow discord. There are those hedge funds who shorted GameStop when it was high and did well, and there are others who withstood losses on GameStop only to gain assets. The biggest winners, inevitably, aren’t the little guys. And the game is by no means one-sided. Now that forums like WallStreetBets are such robustly confirmed venues for manipulation, Peterson predicts, “There’s going to be hedge funds that are getting involved, rallying the herd under the guise of just some regular people.” Can a largely anonymous community held together by solidarity and shared sensibility, on a platform infamous for its promotion of paranoid conspiratorial thinking, possibly withstand actual – or imagined – infiltration by the enemy? “There will be trolls and double agents in these communities,” Peterson says.
In all likelihood, there already are…
Of everyone I interviewed for this story, Robert Johnson, a finance professor at Creighton University’s Heider College of Business, was most dismissive of the David-and-Goliath reading of the GameStop saga. This all-too-popular spin on the story plays on the vulnerable and pandemic-bored public’s appetite for uplifting narratives – especially ones that celebrate behaviors we feel guilty about, like chasing cheap thrills and sensation-seeking.
“The prevailing narrative is that it’s the little guys against the big guys. And when you get down to it, that’s really not what’s going on,” he says. For one thing, “A lot of the people that really made a lot of money on GameStop were professional investors.”
It’s also misleading to say that apps like Robinhood, Johnson points out, “democratize investing.” He says, “What they really democratize is speculation.” The type of trading these apps encourage will only compound a generationally endemic view of investing as akin to gambling… because the type of trading these apps promote is akin to gambling. “The miracle of compound interest only works if you have a long time horizon. And unfortunately, people get themselves into so much trouble early in life that they’re trying to dig themselves out,” Johnson says, bemoaning the fate of the trigger-happy WallStreetBets brigade.
Hoping I can cheer him up, I tell Johnson about Shawn Daumer, who idolizes his fellow Omahan Warren Buffett. And though the media lumps him in with them, he has little use for Reddit – and I think it works…
“That kid that you’re talking about in Indiana is perfect,” Johnson says. “Perfect! He didn’t even go to college so he’s got a long-time horizon. And if you start investing early enough in life, my God, it’s all you gotta do.”
See, it’s hard not to be at least a little inspired…
GameStop: A Story That Sells
Talk to enough people about WallStreetBets and the Great GameStop Squeeze of 2021, and they won’t all agree… but you’re going to get the sense that something somewhere has definitely been democratized. If it’s not the democratization of investing we’re seeing, and if we shouldn’t be too quick to celebrate the democratization of speculation, we might look to the democratization of manipulation as a revealing trend. “Of course, there has always been manipulation,” says economist David Hirshleifer, a finance professor at University of California Irvine. “But often manipulation is a very secretive thing of a few players trying to move the price and avoid being detected so that they won’t be prosecuted.”
(Put Caddyshack aside for a moment… and recall the plot of 1983’s Trading Places, wherein the brothers Randolph and Mortimer Duke attempt insider trading to corner the frozen orange juice market, an example of the old-fashioned secretive style of manipulation to which Hirshleifer refers to.)
“One thing that’s different about this bubble is the idea of explicitly coordinating among very small investors and saying, let’s all buy at the same time,” Hirshleifer says. “Mass movement for price manipulation is something that has become much easier with modern social media or Reddit threads.”
What’s not new, he adds, is this generation’s belief that they have actually usurped someone – that it’s something the old-timers just don’t get. The true advantage, he believes, lies with the older generation. “Older investors who have had longer-term experience have had the chance to see the fall of bubbles,” he says. They’ve seen enough that they know where the horizon is. “A very young investor, if this is the first bubble period that they’ve experienced, they see boundless opportunity – and the downside feels more theoretical.” In reality, the downside, as life has a way of teaching us, is never theoretical. But there’s less of a market for a movie with that sentiment as its tagline.
And don’t take it from me: This story wants to sell. There are close to a dozen movies, now in various stages of development, depicting the GameStop squeeze and the Redditors whose merry mischief made it happen. Some, one of which features Indiana’s own Shawn Daumer, will be documentaries. But they’re mostly dramatic features – likely to play up the personal lives of their based-on-a-true-story subjects. Which makes sense, as cinema realité does not reliably serve a tale that takes place between basement-dwelling guys (and they’re mostly, but not all, guys) parked in front of screens. In what was probably his biggest trade to date, in an existential sense anyway, the Redditor who founded WallStreetBets sold his life rights to a Hollywood production company in early February.
In soft enough focus, it’s a made-for-Hollywood story about the brief but glorious triumph of the lovable underdogs. Comparisons to comedies with cartoonish elitist villains like Caddyshack and Trading Places capture the tone within the forum. But I imagine how the public will remember GameStop and its underdog heroes is somewhere closer to a Frank Capra treatment… or the epic tale of Notre Dame football hero Rudy – Ru-dy! Ru-dy! Ru-dy! – Ruettiger, who scraped his way onto the team he’d grown up idolizing as a son of the working-class Midwest.
This is because the spirit of the story vastly outshines the underlying achievement, which in Rudy’s case was an athletic career consisting of one single sack against Georgia Tech. (The analogy pretty much peters out at that point, although Ruettiger was indicted on charges related to an alleged pump-and-dump scheme in 2011…) But it’s also because people who know next to nothing about football, like me, love Rudy – the man, the myth, the movie starring Sean Astin.
Likewise, those who know relatively little about market manipulation, for instance, nevertheless love the GameStop saga. That’s not to say that genuine football fans don’t love Rudy – his teammates did carry him off the field chanting his name, after all – or that career traders and analysts haven’t gotten a kick, and in some cases a profit, out of the GameStop squeeze. It’s just that the story itself is more universally appealing than it is… well… true.
Alice Lloyd is a writer and reporter in Washington, D.C., covering culture, politics, and the weirdness in between. Her work has been featured in the New York Times, the Washington Post, the Boston Globe, and the Weekly Standard.