The Revolution That Wasn’t
How GameStop and Reddit Made Wall Street Even Richer Spencer Jakab Penguin Business, £20
If the US Capitol riots were the biggest political event of 2021, the sudden surge in the share price of retailer GameStop, which took place the same month, was its financial equivalent. In less than four weeks, those on the Reddit discussion board r/wallstreetbets made global headlines when they managed to help push up the share price of GameStop, a struggling video-game retailer, from $17 at the start of the year to a peak of $483 less than four weeks later, costing several hedge funds that were shorting the shares billions. In this book, journalist Spencer Jakab takes a look behind the scenes.
In common with other writers on the subject, Jakab argues that the GameStop phenomenon was a by-product of the rise of “free” trading platforms, such as Robinhood, which made it easier for ordinary investors with little capital to speculate on stocks. Such investors were encouraged by internet forums such as r/ wallstreetbets to buy shares and options in order to “squeeze” hedge funds that were betting that the bricks-and-mortar retailer had no future in an increasingly digitised sector. Faced with mounting losses and a torrent of personal abuse, the hedge funds were forced to cover their positions by buying back GameStop’s shares, pushing the price higher and higher.
Jakab’s point is that, although a few ordinary investors did get rich as a result of all this, many ordinary investors, who jumped in at the peak of the market, not only lost money but also landed in debt if they had bought with borrowed money. Indeed, Jakab says it doesn’t really even matter whether investors triumphed on this occasion or not. Just as casino gamblers eventually end up returning all their winnings to the house, Wall Street will still emerge ahead if the affair leads investors to ignore reliable, lowcost ways of building wealth, such as index funds, in favour of speculation in high-cost products, such as options.
The book concludes with lessons to be learned, some debatable – there is little evidence that his proposed financial transaction tax would do more than impose additional costs on investors, for example. He’s also overly sceptical about the benefits of active management, or picking individual shares. Still, most of his recommendations are sensible, especially when it comes to taking a long-term approach to investing.
The billions still pouring into dubious assets, such as special purpose acquisition vehicles, digital currencies and non-fungible tokens, show that the spirits that enabled GameStop’s rise have life in them yet. This book will be an effective amulet.
“Many ordinary investors, who jumped in at the peak of the market, not only lost money but landed in debt”