Sept. 7, 2021
Here is the article.
How a Community of Redditors Uncovered the Biggest Secrets Behind GameStop’s Short Squeeze and Wall Street’s Stock Market Manipulation
Includes a link to a digital library of due diligence around the most significant financial event in history.
The biggest short squeeze of all time is coming. GameStop is going to the moon. It’s a matter of when — not if. But explaining why GameStop and other meme stocks such as AMC Theaters (AMC), BlackBerry (BB), and even zombie companies like Sears (SHLDQ) and Blockbuster (BLIAQ) are exploding is complicated, especially for those that aren’t retail traders on Reddit.
Wall Street’s dirty tactics behind manipulating GameStop and other meme stocks, were revealed over the past few months by everyday amateur people who traded stocks. These folks are called retail traders (or, as Wall Street likes to call them — dumb money). Retail trading has grown in popularity in the past few years, snowballing to 25% of all market trades in 2020. Retail trading became viral after GameStop’s first short squeeze in late January 2021.
When the first squeeze happened earlier this year, the mainstream financial news outlets described GameStop and other meme stocks as a battleground between retail investors and Wall Street — David vs. Goliath. They positioned the squeeze as a coordinated effort by social media to drive the price up. The market is “frothing,” caused by retail investors, according to JP Morgan. However, financial journalists couldn’t have gotten it more wrong.
Rising inflation. Eviction moratorium. COVID-19. And the Chinese housing market crash. These are all contributors and catalysts to the potential stock market crash, but ultimately, these are all red herrings. The stock market’s potential crash is not because of retail investors or Redditors. The fault lies with overleveraged hedge funds and market makers who made the wrong bets against retail investors and their unwavering brand loyalty. Financial institutions used shady, under-the-radar, and complicated methods such as dark pools, failure-to-delivery cycles, and shorting ETFs to hide their positions to keep the prices artificially low.
The public won’t know the actual causes for the MOASS (Mother of All Short Squeezes, as retail investors call it) with meme stocks until long after it happens. When Lehman Brothers collapsed in 2008, “everyone from bank customers to policymakers to Queen Elizabeth herself began to ask a painful question: How is it that no one saw this coming?” Financial journalists are asleep at the wheel again!
Wall Street hoped retail investors would forget about the shorted stocks. They predicted that they would get bored and move onto the next “GameStop”. They flooded the media waves with FUD (Fear, Uncertainty, and Doubt), pumping up crypto coins and weed stocks to divert the attention away from meme stocks. They programmed bots to clamor about certain stocks on social media, only to dump their positions after a run-up. Instead, their efforts to divert attention away from meme stocks created a Streisand effect. The Streisand effect is a “phenomenon that occurs when an attempt to hide, remove or censor information has the unintended consequence of increasing awareness of that information, often via the Internet.”
Community
Many retail investors got into GME/AMC for different reasons initially. For years, GameStop was dogged by predictions of its failing business model. With AMC, its future looked uncertain when COVID-19 almost destroyed the movie theater experience.
In mid-2020, a budding YouTube personality, Keith Gill, also known by his online alias Roaring Kitty or u/DeepFuckingValue, began posting online commentary about his analysis into what he believed was an undervalued stock, GME. His commentary grew popular and helped drive excitement around the company.
The frenzy behind the first squeeze in late January created intense interest, fueling growth in stock-based subreddits such as r/WallStreetBets, r/GME, r/AMCStock, and r/SuperStonk. The retail traders devoted themselves to studying the meme stocks, the stock market, and the impact hedge funds have with shorting stocks. The communities that formed consist of everyday folks from around the globe, representing diverse backgrounds and different walks of life — a stark contrast to how Wall Street and the mainstream financial news media portray the retail investors.
The subreddit communities dug in and researched as much as they could about the shorted stocks. What they found was shocking over the next few months. It was almost unbelievable. They found corruption, manipulation, and years of deceit behind the big players on Wall Street. And it definitely seems that Wall Street hasn’t learned its lessons from the 2008 crash after their abuse of the housing market.
Day-by-day and month-by-month, the meme stocks swung wildly up and down in price, but retail investors held on. “We own the float!” was a common battle cry in these subreddits. With each passing day, the retail investors increased their knowledge collectively about the stock market, or as the Redditors like to say, “becoming wrinkle brained.”
Information around naked shorting, synthetic shares, DTCC rules, and failure-to-deliver cycles became mainstream among the communities while still remaining unknown to the general public. When the squeeze happens, there will be a rush of people from media outlets to FOMO traders to understand what happened. And it all starts with the due diligence found on these subreddits, thanks to the contributions and research from these communities.
My stumble into the stock market
I’ve been an amateur retail investor since 2016. Personally, I started trading with cryptocurrencies at first. After my dabble in crypto, I downloaded Robinhood and got into stocks. I asked myself. “How hard could it be? Just sell high, buy low!”
I didn’t know what I was doing and I’m sure I wasn’t alone. US public schools have no mandatory classes on financial matters. Therefore, financial literacy is up to the parents in this country. However, my parents didn’t teach me anything about budgeting, the stock market, or investing. I only learned what a 401k was during my college years! My parents came from Vietnam in 1980 to the United States as refugees and had no knowledge about financial markets.
As I grew more interested in investing, I understood the need to do my research — my due diligence. If I was going to put money into something, I wanted to know what I was doing. I started reading CNBC more. I put Yahoo Finance on my bookmarks on my Chrome browser. I considered subscribing to “The Motley Fool” to pick the hottest stocks on the market. I threw a few hundred dollars across a few buzzy companies and called it “diversifying my portfolio.”
At work, my co-workers and I sat around at the table during lunch, discussing which industries we think would take off. “Weed? Electric cars? Apple?” It sounded like we knew what we were talking about. But we really didn’t. We were amateur traders, all in all. We had limited resources and tools at our disposal (mostly public information) to discern insights from, compared to the Bloomberg terminals and high-frequency algorithms that hedge funds and market makers have access to.
As a longtime Redditor, I had heard of r/WallStreetBets, the subreddit formed around making plays (bets) on stocks and crypto. During the 2017 crypto days, I followed r/WallStreetBets to get news around the newest and buzziest altcoins. However, I found the subreddit quite toxic at times, drawing parallels between the reckless culture pervasive on the subreddit and addictive gamblers I saw as a young man in Louisiana casinos.
During these times, it was common to see Redditors “YOLO” their savings into a particular stock. Sometimes, a few Redditors got lucky and posted massive gains. But most of the time, you see their massive losses in a screenshot. These screenshots, dubbed “loss porn,” are not as common recently since meme stocks consolidated in popularity earlier this year but still show up from time to time.
During my early amateur trading days, I chased stocks that were exploding in growth for the day, only to sell at a loss when I saw it tumbling down. I grew irritated that the stocks I was holding stayed at the same price as stocks I had considered buying or had sold a few weeks ago skyrocketed. It was as if I bought when I saw green and sold when I saw red. This was the total opposite strategy of “buy low, sell high!” that I had told myself when I began trading.
And though I knew the word “hodl,” an intentionally used typo as a meme substitute for the word “hold,” I never intentionally practiced it. I was too impatient and sold at the first sign of trouble. I didn’t even know what “bags” were because I all I did was sell at a loss. Everything was a short-term play. I didn’t know any better. I was essentially gambling, like the people I saw in those Louisana casinos years ago, hoping to strike gold.
Becoming an ape
In late January, r/WallStreetBets became viral. GameStop’s stock price soared to $347 a share. I bought into the frenzy myself, buying in at a whopping $300 a share. I didn’t buy too many shares. I wasn’t confident enough in what was going on. I had no idea what a short squeeze was at the time. I bought shares, mainly for the symbolic reason of sticking it to Wall Street.
I wanted to understand what happened. I tried to understand why brokerages, hedge funds, market makers, and banks could manipulate the stock market like this with impunity, stacking the market against the everyday American people. After reading Mark Cuban’s AMA, I grew more curious, interested, and invested in how everything was tied together regarding the squeeze. I wrote about my key takeaways from his AMA in an article on Feb 4, 2021.
In mid-February, the stock dropped from its record highs to a low $40. The stock stayed at the price for weeks. The shorting hedge funds were keeping the price down, but no one knew for certain at the time.
I was down a lot. I saw red and grew anxious, actively reminding myself to never sell at a loss. Like many other meme stock Redditors (nicknamed lovingly as apes on the stock subreddits), I held onto my shares tightly. I had to believe in the stock. I had to believe retail owned the float. I had to believe Ryan Cohen was going to turn the company around.
Still, doubt lingered. I doubted if I was doing the right thing by holding onto baggage like that. I grew desperate for new information to validate our theories about retail owning the float. I wanted to be reassured. And the community pulled through.
SuperStonk
I started to read great due diligence, written by savvy and observant Redditors lifting the curtain behind Wall Street’s biggest secrets. I browsed r/WallStreetBets religiously, making it a part of my morning, lunch, and after-work ritual. I was on my phone so much that my wife noticed and remarked, “You’re on your phone a lot. It’s kinda sus.”
I grew more convinced of my decision, thanks to the research and the FUD and blatant cover-ups conducted by shorting hedge funds and market makers.
Throughout late March and early April, a series of events and mod drama on r/WallStreetBets resulted in what was called “The Great Ape Migration,” an exodus of retail traders who were invested with GME, to move to another subreddit called r/GME, named after the stock itself.
A few weeks later, mod drama blew up r/GME as well and the “Second Great Ape Migration” resulted in many Redditors moving to r/SuperStonk. I remember clicking the join button of r/SuperStonk and seeing about 2,000 community members at the time. 24 hours later, the subreddit blew up into the hundreds of thousands. I couldn’t believe it. I thought to myself, “This was truly a movement!”
Though the drama in these subreddits didn’t stop, the community’s commitment to GME was evident. The community was united in their love for the stock and encouraged evidence-based discussion and debate. The mods did their best to keep bots and “shills” out. And the due diligence kept coming in from a variety of Redditors in a variety of different formats.
Detailed posts like u/atobitt’s House of Cards and YouTube AMAs (Ask Me Anythings) from financial experts like Dr. Susanne Trimbath helped shed more information about Wall Street’s corruption and how they’ve been allowed to treat our financial markets like casinos, at the expense of companies and people alike. The analysis kept validating itself and made more sense with each passing day.
The community’s resolve hasn’t wavered, despite Wall Street’s belief that retail “investors will get bored of GameStop.” They held on.
Red pill or blue pill?
I asked a friend one day who was familiar with the situation behind GameStop. “Do people think we’re the crazy ones? Or do people think we’re crazy?” He agreed with the latter of my two questions.
Talking to people about GameStop’s stock received lots of ridicule from friends, family, and acquaintances alike. A co-worker said to me, “You haven’t sold your GameStop’s shares yet? Are you crazy?”
“There’s no way it can be squeezed to that price,” a friend would say.
“I want to buy in, but it’s just too risky,” was another typical response.
When I tried explaining things like naked shorting and synthetic shares to people, I sounded either more ridiculous or the words went right over their heads. The idea that retail investors own the float (possibly many times over) of GameStop’s stock due to reckless shorting done by hedge funds was an incomprehensible concept to many. The prediction that GameStop and other meme shorted stocks could go to the moon was ludicrous to those outside the retail trading community. Others believed that Wall Street is invincible, and there’s nothing retail investors can do to change that. The explanations, due diligence, arguments, and concepts were complicated to explain. I wasn’t “wrinkle-brained” enough about the inner workings of financial markets to explain why GameStop was an intelligent play.
However, there were people that were willing to take the “red pill” and were open to learning the truth, no matter how dirty and crazy it sounded. Some friends I talked to about GameStop ended up exploring the DD themselves. Many of these friends had heard about the news around GameStop’s stock price and came to me for questions and answers.
Some of them asked me, “Can you send me anything to help me understand it better?” But it was definitely hard to choose which DD to send over to them since there’s so much good content!
Why did GameStop’s stock short squeeze?
This will be a common question for years to come. The upcoming MOASS will trigger FOMO (Fear of Missing Out) among everyday folks looking to jump in. Every person and their mom will be googling questions about the biggest financial event in history.
Why did GameStop and other meme stocks go to the moon? What caused GameStop’s short squeeze? How could hedge funds create naked synthetic shares, attempt to short companies into oblivion, and accrue massive failure-to-delivers without being penalized? What is the next GameStop?
But there will not be another MOASS when all of this pops. Once the biggest squeeze in history happens, regulatory bodies will investigate to ensure it doesn’t happen again (or at least tell us they will), or financial institutions will hide their tactics better.
But the questions will still remain. I won’t be the one to answer those questions. I work in a corporate 9–5 job. I browse Reddit, blog, and write in my spare time. I’m not a financial advisor. I’m too smooth-brained (what self-deprecating retail investors call themselves when they’re out of their element).
Luckily, more capable and intelligent apes put their minds to the task, breaking down complex explanations into simple and easy-to-understand answers. The r/SuperStonk community has amassed a treasure trove of peer-reviewed research and due diligence that is publicly available. What all knowledge-seekers need to do is to start reading to get insights into the GameStop/meme stock squeeze saga!
To help readers get started, a fellow ape, u/zedinstead, put together a digital library of due diligence posts in a very creative manner. It highlights most of the due diligence that helped uncover the clues behind GameStop’s epic short squeeze. All you need to do is click on the book covers to the specific post you want to read. Here is the link to their digital library.
Alternatively, readers can also visit r/SuperStonk’s Important Posts wiki, where many key posts were saved. Another suggestion to get acquainted quickly with what’s going on is to read their Beginner’s Guide to due diligence.
Wall Street tried to suppress information through dirty tactics, but instead, created a generation of investors who sought to learn the truth about what really goes on in the stock market. The Redditors, retail investors, and apes, through the power of social media, were able to help educate each other on matters that were previously unknown to them.
As a result, retail investors are making decisions based on what they’re learning from the research. There is no manipulation from retail investors, simply knowledge sharing. Manipulation is a Wall Street weapon. What all of this really comes down to is that this is a story of community and conviction. As Keith Gill said in his Congressional hearing earlier this year, “I like the stock.”
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