By CATHERINE THORBECKE, ABC News
(NEW YORK) — The GameStop saga.
No one could have anticipated that a struggling video game retailer would be at the center of a next-level frenzy in the stock market that captivated the world, brought hedge funds to their knees and upended the conventions about small investors.
Users from the Reddit page r/wallstreetbets earlier this month gobbled up stock from floundering chain GameStop, sending the price soaring and forcing institutional investors who bet against the company to back out — performing what’s known as a “short squeeze.”
The phenomenon — where short sellers are forced to repurchase stock as prices rise, thereby pushing the price higher — isn’t new, but the combination of characters and technology and novel trading platforms forced Wall Street and regulators to pay attention to retail investors as never before.
The now-legendary r/wallstreetbets page was started in 2012, according to a Wall Street Journal interview with one of the founders. As the pandemic forced people to stay home and trading apps that let users enter the market without the need of brokers or money managers rose in popularity, the forum garnered hordes of new followers during the March 2020 stock market dip and subsequent rally. On Jan. 27, the group had some 3 million members. By Feb. 3, it had more than 8 million.
In early December, GameStop reported that net sales plummeted in the third quarter of its fiscal year 2020, down more than 30% compared to the same time period in 2019. The retailer attributed this drop in sales to a number of reasons, including an “11% reduction in the store base.”
In the same earnings report, however, the company highlighted a bright spot that e-commerce sales had spiked considerably — increasing some 257% year-over-year.
Still, the company reported an operating loss of $63 million in the third quarter. GameStop shares plunged nearly 20% the next day, closing on Dec. 9 at $13.66 a share.
Jan. 11, 2021: GameStop appoints 3 new directors to its board, including co-founder of e-commerce giant Chewy
GameStop announced in early January that it was appointing three new directors — Alan Attal, Ryan Cohen and Jim Grube — to its board.
Cohen is the founder and former chief executive of the e-commerce platform Chewy and one of the largest shareholders in GameStop through the private firm he operates, RC Ventures.
Attal was the former chief marketing officer at Chewy, and oversaw its rapid expansion from three people to more than 10,000 employees. Grube was the formerly the chief financial officer at Chewy, among other executive roles in the e-commerce space.
“We are excited to bring our customer-obsessed mindset and technology experience to GameStop and its strategic assets,” Cohen said in a statement at the time. “We believe the Company can enhance stockholder value by expanding the ways in which it delights customers and by becoming the ultimate destination for gamers. Alan, Jim and I are committed to working alongside our fellow directors and the management team to continue to transform GameStop.”
The announcement sparked some initial chatter on the Reddit page r/wallstreetbets.
Jan 13, 2021: Stock surges more than 50%
Some retail traders jumped on GameStop’s announcement, and in just a few days the stock closed at $31.40 a share on Jan. 13 — a spike of more than 50% since the Jan. 11 announcement.
Many link the initial push in r/wallstreetbets toward GameStop to an individual investor identified by the Wall Street Journal as Keith Gill, but known on Reddit by his screen name “DeepF***ingValue” or “DFV” for short.
Gill publicly touted GameStop stock long before it caught the eyes of Wall Street and the world. In a July 27, 2020, YouTube video posted to his channel, Gill said, “Some people won’t even tune into the stream right now when they hear I’m bullish on GameStop, at the current price point it’s traded at about four bucks right now.”
Gill also posted screenshots of his GameStop portfolio on r/wallstreetbets as far back as 2019. Gill and other members of the forum also cited the bullish GameStop stance of Michael Burry, the legendary trader who was portrayed by Christian Bale in the 2015 film “The Big Short,” as fuel for their investment choices.
Gill did not immediately respond to ABC News’ request for comment, though he told the Wall Street Journal last week that he “didn’t expect this.”
Ciamac Moallemi, a professor at Columbia University’s business school, told ABC News that Burry and Cohen fueled a “small” but growing group that “believed the market was discounting GameStop too much, and that there was some underlying value there and that the business could be turned around.”
“That was part of the driver,” Moallemi said of GameStop’s stock’s meteoric rise. “The second part of the driver was the observation that there were a number of hedge funds who basically had a bet that GameStop would go to zero.”
As the shares slowly edged up, these short sellers loomed large.
“The reason why that’s important is if there’s people betting the stock is going to go down, and if they’re wrong and the stock price gets pushed up, then what will happen is eventually they will capitulate and they will give up,” Moallemi said. “And the act of capitulation is basically to buy back their short position, which will even drive the stock higher.”
“So it started out as kind of a little bit of a value investing story,” he added. “But then this sort of technical phenomenon, which is called a short squeeze, that was really sort the dynamite that was thrown on the kindling.”
Moallemi also said some of the brokerage account screenshots — like the ones Gill posted — also fueled the frenzy.
“In this sort of Wall Street bets culture, people take screenshots of how much money they’ve made or lost to kind of show off,” he said. “And as they sort of advertised that, people started piling into the trade and the momentum built.”
Jan. 19, 2021: Citron Research calls GameStop buyers ‘suckers’
Citron Research, a stock research firm run by famous short-seller Andrew Left, took aim at those buying GameStop stock in a snappy tweet on Jan. 19. Shares opened that day at $41.55.
The firm said that the following day at 11:30 am ET it would host a livestream announcing five reasons why GameStop “buyers at these levels are suckers at this poker game.”
Tomorrow am at 11:30 EST Citron will livestream the 5 reasons GameStop $GME buyers at these levels are the suckers at this poker game. Stock back to $20 fast. We understand short interest better than you and will explain. Thank you to viewers for pos feedback on last live tweet
— Citron Research (@CitronResearch) January 19, 2021
“Stock back to $20 fast,” the tweet added. “We understand short interest better than you and will explain.”
Citron on Jan. 21 said in a subsequent tweet that its Twitter feed had been hacked, but added that GameStop is “going to $20 buy at your own risk.”
The video Citron posted highlighting reasons GameStop will fall has since been deleted from the firm’s YouTube page.
Too many people hacking Citron twitter, will record and post later today. $GME going to $20 buy at your own risk
— Citron Research (@CitronResearch) January 21, 2021
On Jan. 21, the stock closed at $43.03.
Jan. 22, 2021: GameStop surges 50%
As the tug-of-war between the everyday investors and hedge funds heated up and support grew for GameStop on r/wallstreetbets, the stock skyrocketed more than 50% in the trading session on Jan. 22. It opened that day at $42.59 a share and closed at $65.01. During after hours and pre-market trading that weekend, the GameStop continued to climb. On Jan. 25, it opened at $96.73.
Jan. 26, 2021: ‘GameStonk’ gets celeb backing from Elon Musk
Just after markets closed on Jan. 26, Elon Musk tweeted the term used heavily in the Reddit page to refer to GME — “Gamestonk!!” — and a link to the r/wallstreetbets forum.
— Elon Musk (@elonmusk) January 26, 2021
The Tesla chief executive has some 44 million Twitter followers and was already a popular figure among users of the Reddit forum — especially as Tesla stock soared in recent years despite questions over the company’s actual valuation.
Earlier that same day, high-profile venture capitalist Chamath Palihapitiya also tweeted that he was investing in GameStop. His tweet garnered some 26,000 likes.
Shares soared by nearly 140% in after-hours trading. The stock opened on Jan. 27 at a whopping $354.83 a share.
Jan. 27, 2021: Major short sellers close — at a significant loss
Citron Capital and Melvin Capital, two firms shorting GameStop stock that were referenced heavily in the r/wallstreetbets forum, said on Tuesday that they were closing their positions.
Left of Citron Research made the announcement in a YouTube video, saying Citron Capital let go of the majority of their bets that GameStop stock would fall and took a “100%” loss in doing so.
“This has captured the attention of America and every trader and non-trader alike,” Left said. He added that he respects the market and has “respect for the people on the Wall Street Bets and on Reddit message boards.”
The manager of hedge fund Melvin Capital also on Wednesday admitted to CNBC that the fund was letting go of its GameStop shorts. Sources familiar with Melvin Capital confirmed to ABC News that the hedge fund lost 53% of its total investments in January.
Jan. 28, 2021: Robinhood and other platforms restrict transactions for GME, lawmakers react
The saga took an unexpected turn on Jan. 28 when retail trading platforms including Robinhood and TD Ameritrade abruptly restricted most transactions involving GameStop stock. TD Ameritrade said this was “in the interest of mitigating risk”. Robinhood similarly cited volatility, but later said this decision was made based on clearinghouse-mandated deposit requirements that it said “increased ten-fold.”
“It was not because we wanted to stop people from buying these stocks,” Robinhood wrote in a company blogpost. “We did this because the required amount we had to deposit with the clearinghouse was so large — with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements — that we had to take steps to limit buying in those volatile securities to ensure we could comfortably meet our requirements.”
The move sparked immediate backlash and also triggered an extremely volatile trading day — that saw shares reach their intraday peak of $483.00 — before plunging down to $112.25 by the time markets closed.
Lawmakers and political figures on both sides of the aisle soon weighed in. Rep. Alexandria Ocasio-Cortez, D-N.Y., called the restrictions on GameStop “unacceptable” in a tweet. Ted Cruz, R-Texas, said that he agreed with her — though they didn’t end up agreeing to work together.
Jan. 29, 2021: SEC weighs in, trading platforms re-allow most GME transactions
The U.S. Securities and Exchange Commission on Jan. 29 issued a statement saying it is “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days.”
The SEC’s statement, however, did not mention any stocks, social media platforms or trading platforms by name, but said the agency “will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws.”
“Market participants should be careful to avoid such activity,” the statement added. “Likewise, issuers must ensure compliance with the federal securities laws for any contemplated offers or sales of their own securities.”
White House Press Secretary Jen Psaki was even asked about controversy during a press briefing on Jan. 29, though Psaki deflected questions, pointing to the SEC statement.
Josh White, an assistant professor of finance at Vanderbilt University and a former economist for the Securities and Exchange Commission, told ABC News that he’s skeptical the SEC will categorize the Reddit army’s actions as market manipulation.
“In this case, it’s not clear that an internet chat room or a forum that says, ‘Hey, we should all go buy this stock,’ is manipulation,” he said.
He added that in many ways “there’s really no difference” between what this Reddit army did and what hedge funds or institutional investors do when they see a stock that is mispriced in some way.
Jan. 31, 2021: ‘Deadline’ reports a Hollywood movie deal
After a drama-filled week that gripped the nation, the entertainment industry outlet Deadline reported that the saga was already being turned into a movie that was being produced by Tyler and Cameron Winklevoss (of “The Social Network” fame). MGM Studios shared Deadline the article on their site.
A few days later, Tyler Winklevoss tweeted a link to reports about the film and said that when the movie comes out he and his brother will be renting AMC theaters (another popular stock within r/wallstreetbets) for “premiere parties.”
When the r/wallstreetbets movie comes out, I’ll be renting a bunch of $AMC theaters across the country w/ @cameron for premiere parties. We’ll invite the actors for a Q&A and the party favors will be in-store $GME credits. It will be a grand old time!https://t.co/mxQWBOmJYh
— Tyler Winklevoss (@tyler) February 1, 2021
Feb. 2, 2021: GME falls, all eyes on what comes next
After it’s precipitous rise the previous few weeks, on Feb. 2 GameStop stock opened some 50% down at $140.76 a share.
Vanderbilt professor White told ABC News that this “David versus Goliath” saga “reflects a lot in our society” amid a pandemic that has exacerbated income inequality.
Still, he expressed worry about what comes next — and how GameStop falling will ultimately impact these individual investors and faith in the stock market at large.
“We expect that eventually GameStop stock price will come down and some people will lose money when that happens for sure,” he said. “And my fear is that they’ll view the stock market as being rigged and not being fair, and that they won’t invest in the stock market.”
Feb. 4, 2021: Janet Yellen meets with regulators
Treasury Secretary Janet Yellen publicly addressed the saga during an interview with Good Morning America on Feb. 4, saying she was meeting with regulators to discuss if the agencies need to take “further action.”
“I’m actually hosting a meeting later this morning with top regulators at the SEC and the Commodity Futures Trading Commission, and also the Federal Reserve to discuss recent developments,” Yellen told ABC News’ Robin Roberts. “We really need to make sure that our financial markets are functioning properly, efficiently, and that investors are protected.”
“We’re going to discuss these recent events and discuss whether or not the recent events warrant further action,” she added.
Shortly after her comments on GMA, trading for GameStop opened at $91.19 a share. On Thursday afternoon, they closed at $53.33 a share.
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