The Five Best Things: Jan 30, 2021

$GME 🚀🚀🚀

Can you believe we are at the end of January already?

The Gamestop story blew up this week, and RobinHood’s reputation went up in flames. So what happened, exactly?

The Five Best Things

  1. Brent Donnelly: Off Wall Street and Off-Off Wall Street

  2. Matt Levine: The GameStop Game Never Stops

    • The most comprehensive history of how we got here with GameStop, as compiled by Matt Levine. In addition, he talks about the nihilism and ‘boredom markets hypothesis’ - stocks trade these days not on fundamentals but because people are stuck at home due to the pandemic. Why not trade stocks en masse with friendly strangers on Reddit?

    • Matt also suggests what GameStop should do with a hugely inflated stock price and a passionately dedicated shareholder base HODLing (translation: holding on for dear life-ing) - an at-the-market or ATM offering, making new shares available for sale in open markets at whatever the current price is. It is a delicate maneuver - it can backfire if retail sentiment drops off causing prices to tank, existing shareholders cry foul due to dilution, and opens up the company to charges of fraud - but can provide for a rapid infusion of cash on the balance sheet.

  3. What’s the deal with RobinHood halting trading and needing to raise $1B overnight?!

  4. WSJ: Keith Gill Drove the GameStop Reddit Mania. He Talked to the Journal.

  5. Nick Maggiuli: The story of the Piggly Wiggly short squeeze

    • This week on the stock market was pretty wild, but pales in comparison to the corner pulled off by the owner of the Piggly Wiggly chain of stores. Faced with short sellers, Saunders borrowed $10M in 1923 and accumulated enough stock in his own company and forced the price to climb from $55 to $250 in a single day. Unfortunately, The Man stepped in again to halt trading and providing the short sellers time to cover their shorts by buying from other shareholders across the country (such as widows and orphans).

    • This story and many other great ones are covered in the book Business Adventures, which was published in 1969 and is a favorite of both Bill Gates and Warren Buffett. Reading this book is what put me on the path to Business school!

I’ve had a soft spot for GameStop since doing a class project on a strategy for turning around the business. It certainly seems like a Rubicon has been crossed in the wars between ‘professional’ investors and retail investors, and boomers and millennials. The sentiment is captured best by Fred Wilson’s post this week.

The generational aspect of this is important. Boomer hedgies getting crushed by young folks self-organizing in social media. It feels like a moment where you realize that the power structure has shifted and things won’t be the same.

The financial system in the US, and in other developed countries, is a rigged system and has been for a very long time. Only big institutions can get into hot IPOs. Only rich people can invest in startups. Many of these rules are designed to protect “widows and orphans” but all they really do is make the rich richer and keep those without money out of the game.

I can’t verify the authenticity of this story posted on the Reddit, but it does a good job of capturing the sentiment towards Wall Street, which has been brewing since ‘08.

Honorable Mentions

Disclaimer: The views and opinions expressed in this post are my own and do not represent my employer.