When Ben, 28, a software engineer from Leeds, bought two shares in US games retailer GameStop for £460, it was for one reason, he says: “When they make the film about this in years to come, I’ll know I was there at the frontline with a bunch of idiots on the internet, trying to bring down Wall Street.”
For Emma Rivers from East Sussex, who invested £1,400 in the same company – having known little about it a few weeks ago – it has all been about sending a message that capitalism has had its day.
“I liken this week’s events to going on a protest – but one you make using your computer. It’s the most exciting thing to happen in a long time and I feel like we’re on the verge of toppling Wall Street,” said Rivers, who is hoping to start a master’s degree in anthropology.
Emma and Ben are just two of the thousands of small investors from around the world, including many in the UK, who have spent much of the past week staring at the soaring share price of a relatively unknown US retail chain, GameStop.
What started out as a call to the gaming community to save one of the last big bricks-and-mortar retailers from the US hedge funds that were known to be “shorting” its shares quickly turned into a mass movement that has sent shockwaves through the financial world, on both sides of the Atlantic.
For some of the army of small investors who answered the call on the WallStreetBets forum on Reddit, this has been all about bringing the “corrupt” big beasts of Wall Street to their knees. Others have simply viewed it as a way to make some much-needed money at the expense of hedge funds – the companies that planned to cash in on a popular store’s decline.
Whatever their motivation, it has worked – in the short term at least. Rather than preside over an anticipated decline in GameStop’s share price, fund managers have watched in horror as the army of bedroom traders pushed the share price from $20 on 12 January to a high of more than $483 last week. The share price closed for the weekend at $325 after another frenetic day’s trading.
Last Thursday, there was outrage after Robinhood, the platform that many had used to invest in GameStop and other firms in a similar position, such as Nokia, suspended trading.
Robinhood’s co-founder Vladimir Tenev defended the decision to halt the buying of shares in certain stocks, citing “unprecedented times” and the need to ensure it was holding enough cash to cover the trades. “As a brokerage firm,” he said, “we have many financial requirements, including Securities and Exchange Commission net capital obligations and clearing house deposits.”
He was immediately accused of working to protect the big beasts of Wall Street against the amateurs. Within hours of the trading suspension, one Robinhood customer is reported to have filed a class-action lawsuit against it in federal court. The action claimed Robinhood had “completely blocked retailer investors from purchasing [GameStop] for no legitimate reason”. Robinhood rejects the claims.
US politicians soon joined the backlash against Wall Street. “This is unacceptable,” tweeted New York congresswoman Alexandria Ocasio-Cortez. “We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.”
Limited trading on Robinhood resumed on Friday after it secured a $1bn (£730m) injection from backers to handle the market frenzy. GameStop’s stock rose another 80% in early trading.
“I’d be lying if I said that I got much work done this week as the share price was flying all over the place,” said Ben on Friday as he and several friends in the gaming community nervously waited for the US markets to open. “For us this has been about sending a message that we won’t tolerate the fact that the markets are rigged against us. I don’t think I am going to lose my money, but I am prepared to. Video games are a big part of my life, and I hated seeing the money men trying to crash the physical games market before its time.”
Mike, a 32-year-old IT manager based in London, invested £17,000 in GameStop at the start of the week, and despite making an early 400% profit, said he and others were not ready to sell just yet.
“The hedge funds are trying to manipulate the market, but the retail investors aren’t selling. People think we are stupid but this is the fight of the millennials v the big boys. On Reddit you have examples of people making enough to pay off student debt, or getting a deposit for a house. Baby boomers didn’t have these issues, but our generation really do.”
Even before the GameStop frenzy, the number of amateur traders buying and selling shares at home – often in their pyjamas during the pandemic – had boomed. Last week, broker AJ Bell reported a 40% jump in customer numbers during 2020.
One person who has seen enough in last week’s activity to be very concerned is Peter Cruddas, chief executive of CMC Markets, who was once dubbed the City’s richest person. The former Conservative party co-treasurer has predicted that the Redditors’ war with Wall Street is just the beginning of retail investor power in the financial markets.
“Retail investors are such an important part of the financial markets, but until now have largely been ignored because they tended to buy and sell in isolation,” he warned. “Now they are gathering together and realising how much power they have as a collective. GameStop will not be the last share traded in this way. Interesting times ahead.”
His prediction will send chills through the hedge fund industry. “This stuff makes the hairs on the back of your neck stand up because it’s career-threatening,” said one trader. “It reminds me of The Wolf of Wall Street.”
On Friday, the UK’s Financial Conduct Authority warned that it was closely watching trading activity in the wake of frenzied share dealing in GameStop and other companies.
Neil Wilson, analyst at markets.com, said the GameStop saga would only end one way for the small investors: in tears. “It’s not a good look and it’s being justified with high-mindedness like ‘democratisation’ of markets,” he warned. “Pump and dump is all it looks like to me.”
Russ Mould, investment director at AJ Bell, said small investors might struggle to find buyers for their shares when the time came.
“GameStop’s £17.6bn market cap would have been enough to make it the 30th biggest stock in the UK’s FTSE 100 index, just above Associated British Foods, the owner of Primark and British Sugar. Yet GameStop lost money in each of the years 2018 and 2019, even before the pandemic hit.
“Holders of the shares now need find a buyer,” he said, “but who’s going to do that in the knowledge that the price has been wilfully ramped? Booking a profit may not turn out to be as easy as it looks – at least anywhere near the share-price peaks.”