WASHINGTON – You say you want a revolution?
Then look at what’s happening on Wall Street.
Small investors banding together on social media are taking on big investment firms by running up the stock price of GameStop, a struggling video game retailer whose shares were trading at around $4 at the start of the coronavirus pandemic. By Thursday, the stock price had surged to more than $480 a share before leveling off and closing at $193.
“We are witnessing the French Revolution of Finance,” declared Anthony Scaramucci, a financier who famously served as Donald Trump’s White House communications director for 11 days in 2017.
Other analysts think Scaramucci, aka “The Mooch,” is right about the revolution, even if he cites the wrong country.
They see parallels between what’s taking place on Wall Street and the streak of populism that powered Donald Trump’s rise to political power and fueled a pro-Trump mob of insurrectionists who stormed the U.S. Capitol three weeks ago in a failed bid to overturn his election loss to Joe Biden.
“We are starting to realize that traditional rules don’t necessarily have to matter,” said Frank Murtha, the co-founder of MarketPsych LLC, a behavioral finance consulting firm. “The rules only work if a lot of people are willing to play by them.”
What happened on Wall Street and in Washington “speaks to a larger disenchantment and sense of unfairness that is going on in society,” Murtha said. “This is merely a natural move by these guys that, I think, is largely an attempt to strike back at what they consider to be unfair forces in society. And they’ve found a way to do it.”
The way they’ve done it is the same way that Trump supporters organized their attack on the Capitol: by turning to social media.
GameStop, a struggling video game retailer, has seen its stock price soar as a group of smaller investors take on Wall Street.
Weeks before the mob descended on the Capitol, Trump supporters refusing to accept the November election results took to social media sites like Parler and other internet forums and circulated plans for a mass protest in Washington that would coincide with the counting of electoral votes in Congress.
In the same vein, small-pocketed investors used the social media platform Reddit to launch their assault on Wall Street and drive GameStop’s stock price higher. Reddit users on a forum called “WallStreetBets” took matters into their own hands after hedge funds began unloading the struggling retailer’s stock through a process known as “short selling.”
In short selling, investors borrow a share and sell it in hopes of buying it back later at a lower price – and then pocketing the difference.
Reddit revolution
Furious Reddit users decided to strike back against the big hedge funds by launching a buying spree of GameStop stock, which caused the price to soar.
Suddenly, a movement was born.
“I do think this is a seminal moment,” Reddit co-founder Alexis Ohanian told CNBC Thursday. “I don’t think we go back to a world before this because these communities, they’re a byproduct of the connected internet. Whether it’s one platform or another, this is the new normal.”
“We’ve watched the internet now, over the last 10, 15 years thanks to the rise of social media and all this infrastructure, bring a bottom-up revolution to so many industries,” he said. “We’ve seen this across media. We’ve seen this across so many sectors. And now it’s happening to finance.”
Message boards have been rife with retail investors trading unsubstantiated rumors, rash speculation and trash talk since the internet’s early days. But social media has given organized actions by retail investors and day traders some real muscle.
