By encouraging everyday investors, also known as retail investors, to buy up GME stock and increase its price, hedge funds would have to sell out in order to cut their losses from having shorted the stock, which increases the stock price even further.
“Hedge funds are getting their asses kicked by the retail investor,” Lindzon said.
He noted that millennial investors have been sharing information across Reddit and social networks for years, but the sheer number of them now means they are a force to be reckoned with. “It’s like the velociraptors in Jurassic Park; they get smarter, and eventually they hop the fence,” he said.
The moment has also been a chance for young investors — many of whom have flocked to investing since the pandemic was declared, causing the stock market to jump, helped in part by free brokerage apps such as Robinhood — to flip the bird at established Wall Street firms.
“What I think is happening is that you guys are making such an impact that these fat cats are worried that they have to get up and put in work to earn a living,” wrote one of the WSB subreddit moderators in a post on Sunday. “That fuzzy sensation you are feeling is called RESPECT and it is well earned. Wall Street no longer dismisses your presence anymore.”
“We put the F U back in fundamentals,” one redditor wrote on Tuesday in a post about how many millions of dollars Melvin is estimated to have lost because of the GME surge.
Their actions are having a very real impact on those hedge funds. Two firms announced they were investing over $2 billion into Melvin on Monday — “an emergency influx of cash,” as the Wall Street Journal described it — aimed at stabilizing the fund.
But not all the young investors on WSB are making money from GameStop’s rise.
On Monday, David — a 25-year-old who works in corporate finance for a private tech company in the Bay Area and lives in the Midwest but asked that his last name not be used in this story — bought about $14,000 in GME stock after reading about it on WSB.
He said he’d been watching the chatter about GameStop for months but finally decided to buy in on Monday. “I just figured that the market is completely irrational and that everything I learned in college means nothing,” he told BuzzFeed News.
He bought about $7,000 worth of stock priced at $115 on Monday morning. After watching it rise, he bought another $7,000 at $155 — except that ended up being the stock’s highest point that day.
David panicked as he realized he was possibly about to lose 15% of his total portfolio. He sold all of his GME investment and only lost about $600 in total. If he hadn’t sold them just moments after buying them, by the end of the day he would have been down around $10,000 (although he would have been up by the end of Tuesday).
“Honestly, the majority of bad trades on WSB are due to FOMO,” he told BuzzFeed News over Reddit. “I paid a large (but relatively small) price to learn that lesson.”
But for many on WSB, the attitude is a mix of “eat the rich” and “get rich quick” (with some redditors saying that their investments are up millions of dollars), as well as a smug joy that their trolling has worked and the investing and media worlds were suddenly paying close attention to them.
“A good way to check how many hedge fund managers there are in your building is to check the pavement outside,” one redditor posted on Tuesday. “It should be covered in blood.”
“Any man that dies holding GME will be greeted by the All-Father himself in Valhalla,” another wrote.
Beyond redditors, other investors also see this moment as one when young internet investors are able to have a significant impact on the big Wall Street firms.
Alexis Ohanian, the cofounder of Reddit, believes it reflects a fundamental change. “2021: the mainstream will realize finance will be revolutionized from the bottom-up bc of the internet: Robinhood investors, Alts, crypto, the list goes on..,” he tweeted.
Tesla CEO Elon Musk, who has publicly battled with investors who’ve shorted his company and has a reputation for trolling behavior himself, tweeted a link to the WSB subreddit on Tuesday afternoon, writing, “Gamestonk!!”
Lindzon said he expects hedge funds to get smarter at handling these moments. He believes that even if there are millions of millennial investors, they can really only significantly impact one relatively small company, rather than a whole market, industry, or corporate behemoth, such as Apple.
But it’s also a reminder that stock markets are reliant on individuals, their feelings, and their actions.
“All of this is just raw human emotion masquerading around as something more profound,” wrote Peter Heilbron, the founder of wealth management company Trace Wealth Advisors, in a blog post about GameStop and Reddit. “Everyone wants to be invited to the party but no one wants to be the one left without a chair when the music stops playing… the friction that exists between those two things is what creates volatility.”
And that volatility exists until the game, well, stops.