In Reddit terminology ELI5 (Explain Like I’m Five) why mainstream media is reporting about GameStop ($GME), Reddit wallstreetbets short squeezing, and hedge funds. Gain insight on what really happened and is it all fake news.

Updated: Jan 31, 2021

Disclaimer: Not a recommendation to buy or sell. While almost all articles on this site are recommended for kids of all ages, this one in particular departs from the norm and is probably 18PL. The opinions of this article are it’s writer’s and not necessarily the stand of MyPF. Reading this article indicates your agreement that this article is for edutainment purposes and to not get easily offended.

Introducing the Players

  • GameStop: A game retail company founded in 1984 with 5k+ stores in US & 1k+ stores internationally. Their stock price hasn’t been the best thing about their company which is primarily brick and mortar.
  • Hedge Funds: Private investment companies that make money by investing into various asset classes and often using higher risk and more advanced strategies and investment options compared to retail investors (see: below).
  • Redditors (r/wallstreetbets): Members of Reddit in a specific subreddit (topic) wallstreetbets discussing on stocks and options trading known for aggressive trading nature (hence bets), lack of language filter, and now for GameStop’s short squeeze.
  • DeepFuckingValue: A member of r/wallstreetbets who is largely respected within the subreddit as a hero and role model that others follow.
  • Brokers (e.g. Robinhood): brokers that help facilitate buying and selling of stocks recently come under criticism for halting trading of force selling stocks on margin.

The Short Squeeze

What is a short squeeze?

A short squeeze is when there’s a rapid increase in a stock price with demand from short sellers to cover their position but lack of sellers. Many Malaysians first heard about short squeezing from award winning Hollywood movies like “The Big Short” (directed by Adam McKay), and  “The Wolf of Wall Street” (produced by the legendary Leonardo DiCaprio, Martin Scorsese, Riza Aziz, etc) or maybe Netflix’s “Billions”.

(Source: IMDb screenshot – Internet Movie Database NOT 1MDB)

What’s a seller vs short seller?

Ok listen hear stock dummy. This is a basic dumbed down explanation. A short seller is someone who sells stocks that he (or she) doesn’t own.

How do you sell something you don’t own?!

You do this by borrowing the stock, selling the borrowed stock, and then only returning the borrowed stock you sold later.

If you buy stock normally, your maximum risk exposure is the amount you invested (ie goes to zero). But if you short sell, your potential losses are well… infinity. And short selling is done using a margin account (re: borrowed money) which is often leveraged thus multiplying the effect.

Now what is a hedge fund?

A fund that pools money together. Like a mutual fund or unit trust lar. (ELI5: Whar is a hedge fund)

A hedge fund is like a private exclusive fund mainly for institutional investors and HNW (High Net Worth) individuals. It’s much more loosely regulated as you are a sophisticated investor.

HNW (Malaysia): Min net worth RM3m

Sophisticated Investor: Min annual income RM300k (or RM400k joint with spouse)

Here’s SC’s official definition

A hedge fund also has similarities (same but tak sama lar) with private mandates (yang doh tengah hype min RM50k tu). Did we mention investing in a hedge fund (or private mandate) is high – very high risk (depending on the underlying investments)?

(Source: Google Ad)

So the majority of you reading this have really no business investing in a hedge fund or trying to make easy quick money. But end up getting charged 1-2% on investment and another 10-20% on profits (while taking on the bulk of the risk on your own money).

Balls Crushed

Now that we have set the stage with all the major players and you are now a financial genius that can tell the average person what’s a short squeeze and hedge fund, let’s get on with the epic story (that’s still unfolding).

(Source: r/wallstreetbets; DFV now = est 17m!!)

  • Apr 13, 2020: Redditor Senior_Hedgehog calls GameStop (GME) – THE BIGGEST SHORT SQUEEZE OF YOUR ENTIRE LIFE
  • Jan 22, 2021: Per food Chewy.com founder Ryan Cohen (aka Papa Cohen) and WSB hero DeepFuckingValue leads Redditors on   wallstreetbets to ride GME to the moon 🚀 ending the day at an all time high of $65.
  • Jan 27, 2021: r/wallstreetbets some members set their sights on socially short squeezing AMC Theatres ($AMC).
  • Jan 27, 2021: White House press secretary Jen Psaki addresses question whether worries on the GameStop short squeeze and responds that they are “monitoring” the situation.
  • Jan 28, 2021: Robinhood gets hate for halting the buying of $GME and is sus/accused of market manipulation by US Senator Ted Cruz and US Representative Alexandria Ocasio-Cortez (aka AOC) with a class-action lawsuit filed by a Robinhood user. (And all of this is super ironic considering Robinhood’s name) as a Redditor puts it “robbing the poor and giving it to the rich”.
  • Jan 30, 2021: Google getting flak for deleting the thousands of 1 star reviews left by pissed off users of RobinHood.

(Source: r/wallstreetbets; Oh boy lotsa pissed off investors)

  • Jan 28, 2021: GME keeps getting short squeezed with hedge funds losing $5b! Some hedge funds have also reportedly throwing in the towel and taking the losses (of 100%+) but Redditors aren’t buying (selling) it.

(TradingView chart)

Hold the Effin Line

GME ON! I’m in. We effin’ hold!

Many are still holding on to their GME shares despite the massive gains if they were to sell now.

(Source: r/wallstreetbets; Rallying around DFV & his? literal balls)

(Source: r/wallstreetbets; “I’M STILL IN”)

(Source: r/wallstreetbets; Wow. Teamwork much.)

There’s also been comparison with gaming major battles on Eve Online where this is being part of a massive event experience that goes beyond making money.

Social Shorting

Many including Elon Musk, Jim Cramer and others have weighed in. Not just GameStop short selling but really how social short selling will change things (or not). Some Malaysians are also comparing it with short squeezing glove stocks on Bursa. (Although unlikely as short selling is limited on Bursa and the BursaBets community is very small).

“WSB feels like it’s the working class vs. the hedge funds. The poor vs. the rich.” ~Twitter user @redditinvestors

(Source: Twitter @elonmusk; You can bet Elon’s gonna weigh in)

(Source: r/wallstreetbets & Twitter @ParikPatelCFA; Well. If Trump is immediate past president…)

(Source: New York Times)

How do you think GameStop and the future of short squeezing will unfold?

 

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