Traditionally, the individual investor had no power in the stock market, as it was dominated by larger institutions. However, a year ago a community of Reddit users from the forum r/wallstreetbets completely changed the status quo as they skyrocketed the stock of game retailer, GameStop.
Sami Osman is co-founder and CEO of Quartr, the free-to-use investment app that gives users easy on-the-go access to company information such as earnings calls, helping them make better investment decisions. Osman met his four co-founders in the Swedish financial Twitter community and decided to set up a company transforming investor relations. At just 25, Osman has grown Quartr to 34 people, with the goal of levelling the playing field and ensuring that every investor has access to the relevant company information.
Speaking to The Fintech Times, Osman explains how there was a dynamic power shift in the investment world following GameStop, as for the first time individual investors dictated the stock market:
Just over a year ago, the markets underwent perhaps their greatest upheaval since 2008, with a dramatic thirtyfold surge in the stock of GameStop, a floundering American gaming retailer previously thought to be on the path to bankruptcy. A community of Reddit users from the forum r/wallstreetbets shook the New York Stock Exchange, hedge funds, and the very perception of investment by inflating the stock price of the video game store. A year on, can we assess the movement with fresh eyes?
The GameStop short squeeze that led to massive losses for short-sellers and hedge funds was seen by some as a full-frontal assault on Wall Street by a new kind of investor. This decision by retail investors on Reddit and Twitter to short squeeze GameStop, as well as its outdated companion Blackberry, created a peculiar irony, with new technologies breathing life into declining ones. Just two years earlier GameStop had announced record-breaking losses, but in January 2021, riding a wave of social media fervour the likes of which had never been seen before, its stock hit a record high of $483. Like most popular topics and trends generated online, preoccupation with GameStop has long moved on. But in the matter of a few weeks, it seemed to have altered the very face of investment for good.
The undeniable discovery of the saga is the impact retail investors can have on the market. A movement that inflated GameStop’s stock and lost hedge funds like Melvin Capital over half their investments, was dictated almost entirely by social media communities. It even made GameStop’s then CEO George Sherman a very brief billionaire, when his company stocks that were worth $44million a month earlier hit $1.1billion on the 27th January 2021. Although it’s unlikely Sherman was ever able to cash in on this windfall, the whirlwind of the company’s rapid growth underscores the power of individual traders when they can share information and act as a collective unit.
This Reddit-driven stock rise shows that it is not just information and insight that dictates investment decisions, but also availability. Value can now be driven, or even artificially created, by social media, as emerging cryptocurrencies have since shown.
Although the insight provided was not market-beating, r/wallstreetbets produced a collective of investors whose influence was greater than the sum of their parts. The outcome of GameStop was arguably less significant than how it was carried out; the pooling of knowledge by individual investors, who put this to use on free trading platforms, signified a change that the investment world was only just beginning to undergo.
While r/wallstreetbets and like-minded individuals initiated this investment revolution, the response to the short squeeze indicates that there is much further to go in the democratisation of investment. The halting of GameStop, Nokia and AMC stock purchases by Robinhood and other stock-trading apps on January 28th, which cited additional collateral demands from clearinghouses as justification, was met with furore and accusations of market manipulation by Reddit users. Despite triggering GameStop’s rapid stock growth, r/wallstreetbets was not in control of its decline. Although the information is technically far more readily available in the digital age, insight into the investment world is still limited both in accessibility and distribution. It may be cheaper and easier to trade than it has ever been, but equality in access to comprehensible data and insight has not yet evolved at the pace of brokerage. The system is not only unequal, but archaic, with the conference calls and earnings reports of public companies obscured by websites that are inconvenient for an outsider to navigate. And there are many powerful people who want to keep the same rulebook in place.
Another oddity produced by this saga was the rising stock of Australian company GME Resources. While Reddit instigated a nostalgic resurrection of brands like GameStop and Nokia on Wall Street, the small mining company underwent a 50 per cent surge during intraday January 28th trading on the Australian Securities Exchange (ASX). The accepted explanation for this unexpected growth was the shared stock symbol of GME Resources and GameStop (GME). While this highlights the sheer scope of the GameStop movement, it seems to indicate that Reddit’s role as a primary investment information source does not guarantee the security of investment.
Unlike hedge funds and investment institutions, the information obtained by retail investors from online forums like Reddit is not ensured to be accurate or profitable. The inaccessibility of these reliable market insights has prevented the development of the GameStop movement from one of market disruption to a levelling of the investment playing field.
Although it showed their strength in numbers, GameStop is also a cautionary tale for the online retail investor. Many individual traders held onto long positions when the stock prices began to plummet because of widespread calls via social media. For several retail investors, GameStop was not profitable whatsoever, with some suffering heavy capital losses. The future of investing is not limited to either the comprehensive insight of financial analysts or the total availability of social media, but both.
To accurately assess the impact of GameStop, we must look at what has changed since its stratospheric stock price dropped back down to earth. Reddit traders flexed their market impact, producing a smaller-scale surge in GameStop, along with AMC and Koss, a month later amid the game retailer’s board reshuffle. Individual investors are now increasingly considered a valuable component of the market, particularly when they utilise their power in numbers. However, the frenzy of GameStop was not brought about by access to investment information such as conference calls and earnings reports, but by the rapid adherence of retail investors to a collective, seemingly random, online goal. Once retail investors achieve equity with institutions in access and reliable information, then a fair investment process that GameStop briefly achieved will be realised. Until then, there is still a long way to go.
Quartr is an app that gives investors and shareholders easy access to company communications by enabling them to view company information such as: earning calls, reports, presentations and transcripts instantaneously. This allows investors unprecedented information to make smarter decisions and companies to improve their investor relations. Headquartered in Sweden, Quartr employs a team of 34 people and has now raised $6.1million in funding to date. Previous investors include Peter Sterky, CEO of Trift Capital and former CFO of Spotify; Dan Castillo, co-founder of the OnlinePizza group (acquired by Delivery Hero), and Jacob Hellqvist, former CFO of Epidemic Sound.
Sami Osman, CEO and co-founder of Quartr: linkedin.com/in/sami-osman-479067212/