GameStop, very close to bankruptcy, the parent company of the well-known brand Micromania had known a massive squeeze since the beginning of the year.
This is a unique story! How 2 million of “deplorables” gather in order to put a speculative hedge fund on knees in order to save their beloved brand.
Look at the other stocks involved in those squeeze events: Blackberry Inc. or AMC Entertainment Inc.
Those are names with strong generational and sociological meanings: they remind their youth to the 30-40 years old people, the latter using social network in order to save their childhood memories.
To stop those squeezes, Robinhood and other brokers had to forbid buy trades on those shares.
That’s crazy! Rules are being changed when they go wrong. It is like Twitter censuring Trump’account, or asking for the stock exchanges to be closed in March 2020.
We all know that markets have to be symmetric between buying or selling orders: brokers and trading platforms have to guarantee a safe access to markets to investors. By threating this symmetry, Robinhood and others put themselves at risk. They may be boycotted by this this new collective power and then disappear.
To conclude, by having crushed a big one, those “small” investors got aware of their power by being together and are now likely to become addictive to such behaviour. It raised many questions for the future:
Won’t it be more and more dangerous to short stocks, especially if there they are already heavily shorted or with strong symbolic meanings?
What about risk management in hedge fund structures?
Let’s bet this story will become the new Hollywood’s blockbuster!
At Quantology Capital, French specialist of behavioural finance, we believe in collective intelligence: our motto is “No Beliefs, only processes!”.
More than fundamental valuations, we focus on investors’ psychology, the latter needing to be at the center of the investing process.