GameStop has been around for years, but it’s recent success as a distribution hub is creating more buzz than ever. Who are the winners and losers of this revolution?
The “how much money did gamestop investors make” is a question that most people have been asking. Though there are many different opinions on the answer, it is difficult to determine who really got rich from the GameStop Revolution.
Last January, when Reddit became the raucous epicenter of the investing world, its co-founder Alexis Ohanian dubbed the uproar a “revolution” and a “opportunity for Joe and Jane America, the retail stock purchasers, to flex back and push back.” Perhaps, one day, users of Reddit’s WallStreetBets community will be able to do more than merely ambush hedge funds—they will be able to surpass those well-paid investors.
The novices who turned gaming company GameStop GME 4.69 percent into the world’s hottest stock believed they had a twofer: defying Wall Street while profiting handsomely. However, the revolutionaries failed miserably on both counts. Mr. Ohanian’s share price hanging over his shoulder during his CNBC interview on Jan. 28, 2021, would be virtually as high as it got. Even while a group of already-rich individuals on Wall Street and in corporate boardrooms grew even wealthy, GameStop’s value plummeted by roughly 90% in a week. Mr. Ohanian was unavailable for comment, according to a spokesperson.
Some hedge firms gained millions by imitating the Reddit renegades’ wager. Citadel Securities and Robinhood Markets Inc., two companies that processed transactions, made large profits from the frenzy of activity. Many firm executives also sold their stock.
The GameStop boom was often depicted as a social media-fueled victory of amateurs versus pros. Tips shared on Reddit’s WallStreetBets forum were soon magnified on TikTok, Twitter, and Discord, enabling swarms of individual traders all over the globe to act in unison and even move markets. They shared memes with photographs of their favorite firms placed on the moon’s surface, indicating how high they wanted the stock to rise. They said they were trying to outsmart hedge funds that were betting against these equities.
During the meme-stock craze, Keith Gill, popularly known as ‘Roaring Kitty,’ became a Reddit star.
The Wall Street Journal’s Kayana Szymczak took this photo.
As WallStreetBets grew from less than 2 million members at the start of January 2021 to more than 11 million, some of those small-time investors made money. One of them was Keith Gill, alias “Roaring Kitty,” who rose to prominence among Reddit users while amassing tens of millions of dollars. And those on Wall Street did not do well. According to The Wall Street Journal, Gabe Plotkin’s hedge fund Melvin Capital lost a stunning $6.8 billion in January 2021, and other firms also experienced significant losses.
When the dust cleared, however, the common picture of America’s finance being flipped on its head wasn’t totally true. Individual investors who purchased GameStop a year ago and never sold are sitting on substantial losses.
The right spot at the right moment
Before their moment in the sun a year ago, meme stocks were struggling businesses. Many long-term professional investors jumped in when their stock and option prices reached absurdly high heights.
Bill Gross, the retired “bond king” and former star manager at California money management behemoth Pacific Investment Management Co., was one of the veterans who claimed to have won millions on GameStop. The billionaire stated his “heart has been with Main Street for many years” as the GameStop craze reached a fever pitch. Investors betting on volatility options were also cautioned that they were “fish at the poker table” and “not part of an intelligent investing crowd,” according to him.
When Reddit investors were purchasing stock options, Mr. Gross directly sold them. It wasn’t a foregone conclusion. Mr. Gross stated in a podcast with the Wall Street Journal last year that he was down $10 million at one point before recovering with a $10 million profit when GameStop’s stock plummeted.
He replied, “It felt nice.” “It was an adventure.” It’s the same feeling as the first time you drove a vehicle or skied down a hill.” Through a spokeswoman, he denied further comment.
Others just happened to be in the right spot at the right time. Permit Capital, managed by activist investor John Broderick, has bought a significant investment in GameStop. Mr. Broderick made a fortune when the price went up.
In February 2021, Mr. Broderick told The Wall Street Journal, “It’s kind of like after the Super Bowl when they ask someone how it feels and they say it doesn’t seem real.” “I think I’ll be able to visit Disney World.”
According to The Wall Street Journal, Senvest Management, a New York hedge fund, became interested in GameStop in early 2020 and purchased 5% of the company’s stock in September and October. Its executives have previously been on the losing end of tight deadlines. According to the Journal, they didn’t waste any time cashing in when this one struck, making a $700 million profit.
Even dormant mutual fund companies jumped at the chance. According to public papers, Fidelity Investments, which had been GameStop’s biggest stakeholder with a roughly 13 percent holding, sold virtually all of its shares in January 2021. The Fidelity Low-Priced Stock Fund and the Fidelity Series Intrinsic Opportunities Fund, both of which prefer dowdy but strong firms that fast-money retail investors overlook, were the two largest shareholders in GameStop stock at the major investing company.
Jason Mudrick, one of the meme-stock winners, seemed to be the kind of Wall Street man the Reddit revolutionaries would love to despise: educated, good-looking, and wealthy. He was named No. 6 in Business Insider’s “Sexiest Hedge Fund Managers” survey a decade ago.
When his $3 billion hedge fund backed large movie-theater operator AMC Entertainment Holdings Inc., another meme stock, he momentarily became a hero among WallStreetBets investors. AMC received pricey cash that could be turned into shares from the distressed-company expert. He made a significant profit as the stock rose in value, allowing him to pay off the loan. Yet, when he decided the meme stocks had gone too far, he gambled against them, selling call options for a profit, much like Mr. Gross.
When AMC’s stock surged again four months later, Mr. Mudrick returned for an encore that wasn’t as well received by the Reddit audience. According to the Journal, AMC sold him $230 million in freshly issued shares, which he almost immediately sold at a higher price when retail buyers drove the stock to its highest level in years. Their wrath was aroused when he was cited as stating he sold because the stock was overpriced.
He didn’t always come out on top, however. According to the Journal, a surge in AMC’s stock price unexpectedly prompted changes in the value of derivatives the fund owned as part of a complicated trading strategy in June, causing Mr. Mudrick’s flagship fund to lose approximately 10% in only a few days.
Mr. Mudrick was unavailable for comment.
Located in the center
Firms that stood Located in the center of all this buying and selling benefited while taking less risk than some other winners. One trading app, Robinhood, laid the foundation for a craze that nearly overwhelmed it by attracting millions of mostly young people drawn by no-commission trading and lottery-like stock giveaways.
It nearly worked too well; in January 2021, Robinhood had to temporarily cease acquisitions of many meme stocks and raise more than $1 billion in order to fulfill escalating liquidity needs resulting from all the frantic trading. However, it produced almost twice as much money in that quarter as it did in the whole year of 2019. A few months later, the broker went public, earning co-founders Vlad Tenev and Baiju Bhatt multibillionaires.
“We’re delighted to have made investing more accessible to a new generation,” said a Robinhood representative, “paving the path for our commission-free approach to be embraced industrywide.” “Giving customers shares in exchange for referring friends to Robinhood isn’t only a gift; it also helps first-time investors feel themselves as owners.” We reject the notion that if you’re affluent, you’re ‘investing,’ but if you’re not, you’re ‘gambling.’”
Other financial behemoths, like as Citadel Securities, the electronic-trading business partly controlled by hedge-fund billionaire Ken Griffin, benefited as a result of Robinhood’s success. Many of the orders placed by small investors via Robinhood, as well as other online brokerages like TD Ameritrade, are executed by Citadel Securities. It pays Robinhood for the right to execute client orders, and Mr. Griffin’s vast computers complete them in nanoseconds by placing numerous modest, calculated wagers that may pile up to billions of dollars in profit.
Mr. Griffin testified before a US House committee in February that he had no part in Robinhood’s contentious decision to halt trading in GameStop during the stock’s surge. And why would he have done that? Citadel Securities conducted 7.4 billion shares of transactions for retail investors on Jan. 27, during the peak of the GameStop surge in 2021. According to Mr. Griffin, this was more than the average daily volume of the whole US stock market in 2019.
The GameStop Reddit Saga is being de-mystified.
Wall Street investors were taken aback when GameStop’s shares surged in January 2021. Stock buying were organised by a group on the Reddit site WallStreetBets to boost the declining gaming retailer’s stock price. Join the reporters who drove the coverage for a discussion of this time in investing history on Jan. 27 at 1 p.m. ET.
Some of Wall Street’s major institutions were also caught up in the craze. Morgan Stanley, which bought E*Trade in 2020 and became the broker for “Roaring Kitty” and millions of other small investors, more than quadrupled its net profit in the first quarter of 2021 to $4.1 billion.
At a virtual conference in February 2021, Chief Financial Officer Jonathan Pruzan remarked, “More clients, more engagement, more activity, more income.” He went on to say that the amount of deals done by E*Trade customers was “off the charts.”
Goldman Sachs Group Inc., a competitor of Morgan Stanley, rode the same wave. During that time, it earned $6.8 billion, the best return on equity in 12 years.
At the time, Goldman Chief Executive Officer David Solomon commented, “I’d say the first quarter was an amazing quarter.” Goldman could not be contacted for further information.
From the inside out
After a year, some GameStop insiders have left, and some have participated in the meme-stock bonanza. According to the Journal, GameStop’s senior executives who departed the business in the months after the stock jump received departure payments of $290 million at the time. That’s more than the whole firm was worth before WallStreetBets spotted it.
Reddit, the firm that served as a staging area for the amateur traders’ revolution, performed well as well. After WallStreetBets helped enhance its visibility, it jumped from a private value of $3 billion in 2019 to $10 billion last summer. An initial public offering (IPO) has been filed.
According to the Wall Street Journal, Reddit co-founder and CEO Steve Huffman wants individual investors to be able to participate in the IPO.
Wall Street is anticipated to have a role. Goldman Sachs and Morgan Stanley are the principal managers of the offering.
—Adapted from Spencer Jakab’s “The Revolution That Wasn’t: GameStop, Reddit, and the Fleecing of Small Investors,” which will be released on February 1, 2022 by Portfolio, a part of Penguin Random House LLC. Spencer Jakab owns the copyright to 2022.
Spencer Jakab can be reached at [email protected]
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The “lost everything on gamestop reddit” is a website where people post about their experiences with the GameStop Revolution. The site has been around for years, but recently it has gained a lot of popularity.
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