GameStop — Speculation and Irrationality: Why and What’s next?
“ Stonks!”
“To the moon! 🚀”
These millennial-speak and irrational sentiments are taking over the internet lately, with the Gamestop saga being the center of all these.
Before GameStop, there was Kodak and Hertz in 2020, where retail investors were buying into stocks that are going into bankruptcy. These hype stocks are coming one after another, AMC, Dogecoin and now Gamestop.
So this is not a new, one-off event.
Different forms of the same irrational movement come and go throughout time.
I think the first step when faced with irrationality is not hostility. Perhaps we can reason with irrationality. Let’s see, is this level of irrationality unprecedented? Even so, is it truly irrational? Are people reasonably driven by emotions and external factors?
Taking a step back and thinking through the situation:
- What happened?
- What is this in reaction to?
- And finally, how will this trend unfold?
What Happened? Memes are taking over Stocks
Redditors target a certain stock and they start to pump prices to ridiculous heights.
Dogecoin, which was based on a meme, is now one of the highly valued coins but with no fundamentals. It is based on pure hype. Even the creator is baffled by its market capitalization and the amount of attention it is getting.
“People are talking about Dogecoin going to $1 — that would make the ‘market cap’ larger than actual companies that provide services to millions, such as Boeing, Starbucks, American Express, IBM. Does Dogecoin deserve that? That is not something I can comprehend, let alone answer.”
- Billy Markus, co-founder and creator of Dogecoin
The recent Gamestop saga also baffled everyone with the crazy stock price with their attempt at short-squeezing a hedge fund.
But why would people want to do that?
Redditors vs Hedge Funds: Why?
Why do Redditors do this? Just for the fun of it?
For such a movement to take form, there has to be a demand for the message.
“Screw these guys in suits for manipulating the markets.”
This growing resentment towards establishments, especially the banks, has been on the rise since the 2008 financial crisis. The banks and large institutions are the perpetrators of the crisis but were “too big to fail” and rescued by the government, while smaller players receive the brunt of this crisis. The massive wealth inequality has fueled this sentiment.
Perhaps it was a David Vs Goliath moment. The people on r/wallstreetbets are hailed as the underdogs in this fight against the establishment and big guys.
Together with that, there is pent-up frustration and economic helplessness due to the year-long pandemic. Can you believe that it has been more than a year since we have been grounded and wearing masks? To some, investing in these hype stocks may be a lottery ticket.
What is there to lose when you have nothing left?
Those were internal factors involving the emotions of individuals. What about the external factors that influence such behaviour?
External factors such as:
- Stimulus checks given in the US
- Social media like Tiktok, Reddit and Youtube
- New technological tools with no-commission trading and fractional shares like Robinhood
The external factors, combined by the emotional aspect of the movement fueled this phenomenon.
Moving forward: What Could Happen
To predict the end, we find patterns from the past to conclude what should be happening in the future.
1. Once the anti-establishment movement becomes mainstream, it will self-destruct.
The main purpose of opposing the establishment is to have a voice, for the alternative to be heard. When such a subculture becomes mainstream, it will cease to exist.
For example, Dadaism, an avant-garde anti-establishment art movement in the 1920s, started to decline when the mainstream started to pick up on their movement.
Now that mainstream media is reporting on r/wallstreetbets and group members propelled to 9 million over the GME saga, the group is susceptible to a decline from here.
2. As long as these sentiments are unresolved, the meme stocks will keep coming.
Yes, they come, they go, and they self-destruct.
But in a macro view, as long as people feel resentment towards the establishment, there will be a demand for this message, and other hype stocks will rise to fulfil this demand.
Yesterday, it was Hertz, today is Gamestop. Who knows what it might be tomorrow?
We shall see.
About Me
A tea enthusiast with an innate curiosity for how the world works.
Join me on my journey as I discover more about myself and the world around me.
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