The Daily Telegraph

Suzanne MOORE

Ben Mezrich charts the four days when the ‘Gamestop saga’ left the financial markets in tatters

- Ben Mezrich is the author of The Antisocial Network (Harpercoll­ins, £16.99). Buy now for £14.99 at books. or call 0844 871 1514

The suits and ties, ensconced in their glass-walled corner offices in the City and on Wall Street, never saw it coming. In January, the entire financial world was put on notice when Keith Gill, a 34-year-old, bandanna-wearing, chicken tender-eating, cat posterlovi­ng micro-trader from Massachuse­tts, started livestream­ing from his basement and, over the course of four days, caused billions of dollars and pounds and euros of losses.

How he did it is perhaps even more remarkable – by toying with the stock price of a shopping mall video game retailer.

Bolstered by a mob of amateur investors gathering together on an obscure messaging board called Wallstreet­bets, Gamestop’s stock ran from a few dollars a share to close to 500, making the company, for a brief moment, one of the most valuable in the world.

The remarkable rally marked a shift in the balance of power, from the staid, profession­al banking class to the micro-trader: regular people – single mothers, college kids, laid-off restaurant workers stuck in seemingly never-ending quarantine­s – who found a way to hijack a financial system that had formerly seemed rigged against them.

From the suits’ point of view, shorting Gamestop – betting against the company by borrowing shares, selling them at market price, with a promise to rebuy them in the future and pocket the difference – was one of the simplest and most obvious trades one could make. As a business, it had peaked in the 90s; though beloved to a generation of gamers who’d spent hours wandering shelves lined with Mario Bros parapherna­lia and Pickle Rick dolls, the company had an atrocious balance sheet, a revolving door of leadership, and no real plan to move into the digital age of downloaded media and virtual communitie­s. It was a company that, two years ago, was well on its way to becoming the next Blockbuste­r.

So it was no surprise that a handful of the world’s biggest hedge funds took aim at the company’s stock price – most notable among them Melvin

Capital, run by a brilliant and powerful former SAC trader named Gabe Plotkin – or that even as the price deflated to only a few dollars a share, the short interest skyrockete­d, even reaching 140 per cent of the float. By the end of 2019, more shares of Gamestop had been sold short than actually existed, because the banking establishm­ent had reached a nearly unanimous decision: Gamestop’s days were numbered.

But then came the dude with the bandanna, spouting his love for the company from his suburban basement. With a simple rallying cry – “We like the stock!” – millions of like-minded amateurs decided that, for once, the suits weren’t going to win. Having posted quietly in 2019, on the Reddit trading group Wallstreet­bets, about his single $53,000 (£38,000) investment in Gamestop, his stock went on to hit $48 million (£34.7m) in value earlier this year.

A bubbling anger that could be traced back to the worldwide financial crash of 2008 finally found a voice in a disparate online mob, who suddenly realised that a million micro-traders with a singular focus could overpower even the biggest of hedge funds. And it wasn’t just the binding power of social media spurring them forward; for the first time in history, Main Street had at its disposal the same financial instrument­s as its moneyed counterpar­t.

Robinhood – a Silicon Valley fintech unicorn founded in 2013 by maths prodigies Vladimir Tenev and Baiju Bhatt with the goal of “democratis­ing finance” by handing the tools of expert traders to anyone with a smartphone – had fast overtaken the more staid online brokerages by offering zero-fee, no-balance trading, along with a slick interface that was both easy to use and immensely fun. Buy your first stock, and confetti flowed across your screen; bright colours, plucky sounds and vibrating feedback made investing feel like a video game, the perfect complement to a movement that revolved around propping up a beloved console retailer like Gamestop.

The resulting short squeeze – a phenomenon caused by short-sellers rushing for the exits as a stock price spirals upward, trying to rebuy their borrowed shares, which only serves to push the price higher and higher – shone a spotlight on the power of the Wallstreet­bets stock trading discussion group on Reddit. Gamestop Corporatio­n (GME) ran from a low of a few dollars a share to nearly 500. The rise was compounded by a single tweet – “Gamestonke­d!” – after market-close on Jan 26 from Elon Musk, the ultimate anti-short internet gadfly.

And it was only when Robinhood, flailing after being served with a collateral call from federal clearing agencies to the tune of $3.7billion (£2.6bn), froze the buying power of its users, that the squeeze at least temporaril­y ended, and the price descended to a still fairly spectacula­r and steady state, around the $200-a-share mark.

Wherever the price of Gamestop’s stock finally settles, the moment continues to resonate: those four days in January proved that the concept of “value” has changed. The price of an asset is no longer tethered to its fundamenta­ls. Things – stocks, cryptocurr­encies, tokens, whatever – are worth whatever we, as a group, decide they are worth.

The rise of GME, the ultimate meme stock, was not an isolated event. AMC and Blackberry Doge have both risen to frightenin­g heights based on Reddit posts, rumours and anti-wall Street sentiment. The founding principle that there is order or rationalit­y in the market has been proved wrong again and again – and, in the end, no investment, no matter how well researched and thought out, can be considered safe.

The events surroundin­g the Gamestop saga have put Wall Street and the City on notice. Now that micro-traders realise the power beneath their fingertips, financial markets must learn to adapt to a new reality; a new balance of power that, at the touch of a screen, can favour emotion over fundamenta­ls.

The principle that there is order in the market has been proved wrong

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 ??  ?? Micro-trader Keith Gill caused billions in losses over four days from his basement
Micro-trader Keith Gill caused billions in losses over four days from his basement

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