Meme stocks: Mystifying Wall Street

GameStop and beyond You’ve heard the story. In January 2021, retail traders active on Reddit, Discord, and YouTube noticed there was a glut of institutional investors short-selling GameStop. So, they bought GameStop stock en masse, sending the share price up, which forced the shorts to buy new long positions in GameStop to recoup their losses—which, of course, sent the price even higher. It was a classic short squeeze, but the fact that Reddit bros could pull this off through collective action was the real news. GameStop remains a struggling video game retailer whose best days are likely in the past (think early aughts shopping malls) and has no business having an $11 billion market cap. (It was $200 million at its low in 2020.) GameStop was the first [meme stock](, but it is not where the saga begins or ends. Understanding meme stocks means acknowledging a series of unusual circumstances—stimulus checks, pandemic restrictions, a booming stock market—and key players, such as Robinhood. We’ll keep this short. 🐦 [Tweet this!]( 🌐 [View this email on the web]( Sponsored by [Quartz Weekly Obsession] Meme stocks June 24, 2022 GameStop and beyond --------------------------------------------------------------- You’ve heard the story. In January 2021, retail traders active on Reddit, Discord, and YouTube noticed there was a glut of institutional investors short-selling GameStop. So, they bought GameStop stock en masse, sending the share price up, which forced the shorts to buy new long positions in GameStop to recoup their losses—which, of course, sent the price even higher. It was a classic short squeeze, but the fact that Reddit bros could pull this off through collective action was the real news. GameStop remains a struggling video game retailer whose best days are likely in the past (think early aughts shopping malls) and has no business having an $11 billion market cap. (It was $200 million at its low in 2020.) GameStop was the first [meme stock](, but it is not where the saga begins or ends. Understanding meme stocks means acknowledging a series of unusual circumstances—stimulus checks, pandemic restrictions, a booming stock market—and key players, such as Robinhood. We’ll keep this short. 🐦 [Tweet this!]( 🌐 [View this email on the web]( By the digits [$200:]( Commission on some stock trades in the mid-1980s [$0:]( Commission on most stock trades since 2019 [$98 billion:]( Robinhood’s total assets under custody at the end of 2021 [2,951.53%:]( AMC’s market cap increase in 2021 [12.3 million:]( Members of the WallStreetBets subreddit Fun fact! The word meme is likely older than you think—decades older than the web. “Meme” was coined by Richard Dawkins in his 1976 book The Selfish Gene to mean a unit of cultural information. Sponsored by Fidelity Try a smoother trading app. --------------------------------------------------------------- Quickly start trading U.S. stocks and ETFs for $0 commission on the newly upgraded Fidelity app. All with no account minimums and no fees on retail brokerage accounts.[Advertisement][Download now]( Robinhood: Prince of Memes --------------------------------------------------------------- Brokerage firms like Charles Schwab, Fidelity, ETrade, and TD Ameritrade used to charge traders to buy and sell stocks. Robinhood changed that when its no-fee app’s popularity eventually [pushed aside]( those trading commissions, opening the proverbial market floodgates [to retail investors](. [US equity volume by retail investors] Robinhood makes money by selling its users’ orders to market makers like Citadel Securities and Two Sigma Securities, a system called “[payment for order flow](.” Critics deride it for being opaque and having [inherent conflicts of interest]( for brokers picking winners and losers. New [SEC rules changes]( would force firms to compete to execute retail trades, in a bid to increase transparency and competition in retail traders’ favor. Retail traders looking for tips can find them in a Reddit forum called WallStreetBets, a thriving community of users—largely male, prone to vulgarity and partial to high-risk, high-reward investments (or “bets”)—who enthusiastically took up easy-to-use (if not gamified) apps like Robinhood to challenge Wall Street behemoths at their own game. GameStop made headlines when the stock popped from $19 a share to $325 in January 2021. But the title of quintessential meme stock goes to movie theater chain AMC Entertainment, now about 65% owned by retail investors, who recently used their collective voting power to [block new stock issuance](. Therein lies the potential future of meme stocks. The rise in retail ownership means that power dynamics are shifting away from institutions and toward, well, a group of crass traders on Reddit. Brief history of the 2021 short squeeze [Aug. 31, 2020:]( Chewy.com founder Ryan Cohen reveals a 9% stake in GameStop and the stock rises 27% on the news. [Dec. 8:]( GameStop reports poor quarterly earnings; its stock tumbles 30%. [Jan. 11, 2021:]( Ryan Cohen joins GameStop’s board. The appointment sends shares soaring. [Jan. 14:]( Retail traders on WallStreetBets expand their focus to other shorted stocks. [Jan. 26:]( Hedge fund investor Michael Burry, who had deemed GameStop undervalued in August 2019, calls the stock’s rally “insane.” [Jan. 27:]( GameStop closes at an all-time trading high of $347.51. Citron Capital and Mervin Capital close their short positions. [Jan. 28:]( GameStop hits an all-time intraday high of $483—a 1,500% increase from its two-week low. Robinhood halts trading of eight popular meme stocks. [Jan. 29:]( SEC says it is “closely monitoring” the volatility of “certain stocks.” [Feb. 18:]( A congressional hearing probes the meme stock saga. Pop quiz Which of these companies has *not* been a meme stock? Bed Bath & BeyondBlackBerryPalantirHot Topic Correct. Wasn’t hot enough for the bros. Incorrect. Nope, that did happen. If your inbox doesn’t support this quiz, find the solution at bottom of email. Sponsored by Fidelity Try a smoother trading app. --------------------------------------------------------------- Quickly start trading U.S. stocks and ETFs for $0 commission on the newly upgraded Fidelity app. All with no account minimums and no fees on retail brokerage accounts.[Advertisement][Download now]( REUTERS/Mario Anzuoni Person of interest No company has ridden the meme stock wave like [AMC Entertainment](. After WallStreetBets faithful zeroed in on the ​​movie theater business in early 2021, its CEO Adam Aron did something GameStop executives didn’t do: He embraced the chaos. Aron earned the nickname “silverback,” chief among the “apes” of Reddit, by speaking their language on [Twitter](. AMC also gave [free popcorn]( to shareholders, started selling popcorn in [grocery stores](, began accepting crypto payments for movie tickets, and ran hours-long earnings calls featuring Q&A sessions with retail investors. In March, AMC announced that it bought a [$28 million]( stake in a gold and silver mine called Hycroft Mining. Not only was Hycroft nearing bankruptcy but, at the time of the investment, it wasn’t even mining precious metals! Why would a movie theater company buy part of a gold mine? Perhaps AMC did it for the meme. It worked, by the way. Hycroft’s stock is up six-fold since the beginning of March. Quotable “These individual investors likely hold a majority of our shares. They own AMC. We work for them. I work for them. So, by definition, their interests and passions are important to AMC. Their interests and passions are important to me.” — [AMC CEO Adam Aron in an earnings call, May 2021]( US Securities and Exchange Commission Watch this! Pie in the face --------------------------------------------------------------- The US Securities and Exchange Commission produced a satirical public service announcement about meme stocks that fell flat with the Reddit crowd. The 30-second video shows contestants on a hokey game show, complete with a laugh track, and a man getting pied in the face for electing to invest in meme stocks rather than researching real investments. “Whoever made that video or decision to post deserves to be fired,” one Reddit user [posted on WallStreetBets](, garnering thousands of upvotes. “You wanna talk about fundamentals and do research? This market does not trade on research and fundamentals.” Poll Do you invest in meme stocks? [Click here to vote]( Yes. To the moon! 🚀Yes. I don’t like to talk about it.No. Why would I do that?No, but maybe in the future. 💬let's talk! In our last poll about [TED Talks](, you were nearly perfectly divided between wanting to give it a go and preferring to stick to your seat. 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