March 13, 2021
GameStop is the story that keeps on giving – and now Washington, D.C. has taken notice.
Questions about market manipulation abound as the Financial Services Committee called two CEOs of pivotal players in the stock market saga, Robinhood and Reddit, to testify on Capitol Hill. Congress and hedge-fund managers seem to be sweating this, wondering whether individual traders now wield too much power.
Will Redditors ruin the “integrity” of Wall Street forever? Will the whole financial system now collapse with meme investing taking hold and future GameStop clones making a mess of everything?
Jamie explains that this new millennial brand of investing shouldn’t cause a moral panic… and that the retail investor’s rise appears to be less an aberration and more in line with a practical evolution of the stock market’s ever-changing realities.
Every Anti-Hero Has an Origin Story
WallStreetBets began humbly in 2012 as a little subreddit forum, utterly unaware of how it would shake the financial institution’s foundations nearly a decade later. Jamie tells me it was birthed as a space for both risk-hungry amateurs and financial pros to congregate, share, and discuss investing ideas.
The community’s initial appeal was that it featured young investors eager to learn, willing to put their money to work, and a cavalier philosophy (nearing nihilism). In the early days, Jamie claims WallStreetBets included lots of hyper-technical questions about stocks, but now it’s transformed into a more casual, macro approach to trending markets.
It attracts a very particular demographic: creative, sophisticated speculators with an intrinsic appetite for risk.
(As for the question you’re all thinking of, no… Jaime did not buy into GME – he prefers index funds, futures, and foreign exchanges. Hear more about Jaime’s favorite stocks.)
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Fundamentals: A Four-Letter Word
But do these risky Reddit investors care about market fundamentals? What about metrics like price-to-earnings ratios? Does that matter to them at all?
In a word, no.
Jaime thinks this new breed of investor is ambivalent or perhaps skeptical of fundamentals, even openly debating their relevance, as short-term stocks don’t always map or correlate to these established rules. They often buy and trade within a couple of hours or days – and fundamentals don’t explain massive fluctuations in brief periods.
As for the take that the GameStop saga got politicalized, framed as a mass of bored, resentful millennials strapped with stimulus money who gave the collective middle finger to the financial establishment – Jaime says that’s an incomplete narrative.
“Market discipline is not in the WallStreetBets’ vocabulary.”
Jaime still thinks the mainstream media’s fangs hooked into the story in expectedly simplistic ways and admits it’s all more nuanced than the purported David versus Goliath narrative.
Hedge-fund short-sellers aren’t all evil, sociopathic big bad wolves – as we’ve covered before, shorting in the market plays a vital role in price determination. The act of shorting stocks does create liquidity, servicing as a core part of market functionality.
It’s all a strange fiscal ecosystem of cyclic, capitalistic cannibalism. GameStop served not as a case of the poor eating the rich, or vice versa, but of everyone trying to eat everyone, a bit of temple-scratching Wall Street ouroboros.
Wall Street 2.0
Jamie says this generation doesn’t care about the market bubble – they’ll switch from buying calls to puts in a zero-sum game, viewing stocks as glorified scratch-off lottery tickets where they can turn $1,000 to $100,000 overnight.
They’re aware it’s not sustainable… But it’s all a hell of a ride.
And now there’s more access to the market for people – free brokers, no commissions, no minimum, and fractional share purchasing. People with little money can now act like banks, buying mortgage-backed securities or CDOs if they wish.
This democratization is perfect for the free market – everyone can participate now. You don’t have to be part of some posh Manhattan hedge fund.
Investors may soon no longer need a middleman, and subsequently, everyday people are getting more educated and engaged in the stock market than ever before.
The Game Is Just Beginning
So, what will the next GameStop be? Listen to Jamie’s answer here.
I do love championing the rise of the individual investor. I mean, what could be more American?
But hedge-fund managers and Reddit investors have more in common than they’d like to admit… as binary breeds of financial experts holding flamethrowers to each other while those of us in the middle get scorched.
And really, that’s the most American phenom I can fathom.
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Publisher, American Consequences
With Editorial Staff
March 13, 2021