Reddit mob wields GameStop stock as weapon against hedge funds

On Tuesday, D.C.-based writer Alex Kirshner wrote a piece for Slate titled "What the hell is going on with GameStop's stock?", a question we invited him to answer again Wednesday afternoon. "How far back do you want to start?" he asked.

Founded in Texas nearly four decades ago, GameStop sells video games and video game equipment out of 5,000-plus brick-and-mortar stores across the country. In recent years, it's lost money doing so as the industry's moved increasingly online, enticing hedge funds to short GameStop's stock.

"Trying to make money by borrowing the stock," Kirshner explained, "selling it at a high price, buying it back at a low price and pocketing the difference."

So many institutions shorted GameStop for so much money than when a now-3-million-member subreddit (a.k.a. Reddit forum) noticed the shorting and then organized its members to start buying, the stock price erupted, rising more than 700% in the last week and squeezing those hedge funds until they started buying themselves out of their short positions at massive losses, which drove the stock's price even higher.

Investment firms back down after Reddit thread sends GameStop shares soaring

"The smartest people in finance — or allegedly the smartest people in finance — have been stunned by what has happened here," Kirshner said. "It's kind of a bloodbath for these types squeeze investors."

"I'm not sure I'm ready to bet against the short-squeezers because they have such a platform now," Capital Wealth Planning founder and chief investment officer Kevin Simpson said.

Simpson, who did not short GameStop, called this the biggest short squeeze he'd ever seen.

"I think it's a grand awakening," he said, "and I'm rooting for [the redditors]."

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The morality of this online-mob-organized short squeeze has dominated much of the social media and business news network discourse in recent days but both Simpson and Kirshner recognized little moral difference between a message board community all committing to buy the same stock together and a hedge fund type appearing on a cable show to predict the market's movements.

"They've taken a lot of delight in ruining the days of these wealthier, supposedly more sophisticated investors," Kirshner said.

But the popular casting of this GameStop phenomenon as everyman vs. The Man or Main Street vs. Wall Street may prove misleading when we see who or what goes down with these losing hedge funds as they hemorrhage billions of dollars.

"There's a lot of pension funds," Kirshner said. "Maybe that's teachers or cops or firefighters."

As the White House admits to watching GameStop activity, and T.D. Ameritrade restricts the stock's trading, Simpson thought any SEC investigation into this short-term winning strategy easily duplicated by this or any other sizable online community ought also to examine the roles played by these losing institutional investors.

"Maybe more in general, the way short-selling works," he said. "Or in this case didn't."