Remembering GameStop and the troublesome currency of information
At the beginning of this year, a seismic event shook markets and uprooted the status quo. It birthed a thousand explainers and even more commentary about the relative perils and benefits of retail investing. Yes, I’m talking about GameStop, if our minds, muddied by a year of heavy news, can reach back that far.
In what became known as the “GameStop short squeeze”, members of a Reddit forum called r/wallstreetbets, over a number of weeks, inflated the stock price of GameStop: a sinking American video game chain on the cusp of bankruptcy, torn to shreds by the industry’s digital revolution.
Though on face value it might not seem too significant, this period in human history became a landmark moment. It represented a power shift, the rise of a new kind of investor, one who lives and operates independently from traditional financial institutions and is underpinned by technology. This was a new breed of digital shareholder, who doesn’t wear a tie and probably doesn’t even own one.
Social media was the catalyst in all this. Although Reddit powered GameStop’s stock price rise, it is a comparatively amateurish platform when compared to others such as Twitter. On Twitter, thousands of communities of like-minded investors have risen up and disrupted the status quo. Typically consisting of both traditional financial heavyweights and this new class of digital investor, these groups have ridden the tailwinds of cryptocurrencies and user-friendly brokerage apps, and started making significant returns.
The GameStop short squeeze became a symbol for this broader financial movement. A primary driver of all this is the decreased cost associated with becoming an investor. Robinhood and his Merry Men of Etoro and Charles Schwab have all lowered the barrier to entry for investors starting out, allowing us to exact revenge on the hedge funds and banks who thought they had all the power.
But the ease of investing is just one side of the coin. To become a professional investor you, of course, need the logistical ability to trade, which these apps provide. But to get market-beating returns you also need insight. You need to be plugged in, know which stocks to buy, which companies are likely to succeed.
While brokerage costs have declined, the price of curated information and visualized data has, on average, stayed the same. Professional terminals usually start at £10,000 a year. And just because a public company is required to publish information on its website, doesn’t mean it’s easy to access, or digest.
Conference calls, for example, are often conducted via antiquated software (you half expect to hear the internet dial-up noise when they begin) with recordings tucked away, gathering digital dust in obscure corners of company websites, or sometimes not uploaded online at all.
Retail investors are also often excluded from certain calls. Many analysts enjoy symbiotic relationships with corporates, akin to little fish cleaning the skin off a shark, where they are given information in exchange for favourable adjustments ahead of time. This common massaging of analysts, where estimates and price targets are adjusted to prevent steep stock price falls, shows there is one rule for the few and another for the many.
Fundamentally, everything that’s disclosed should be disclosed to everyone. After all, they are called “public” companies for a reason. Businesses, in general, need to get better at communicating with the investing community. Because the next chapter of this journey, making the stock market available to everyone, is all about information. Until it becomes affordable and easy to look ‘under the hoods’ of public companies, the people with the most money will always hold the upper hand.
Once information is truly democratised, those same Redditors will be able to deeply study the underlying businesses, and invest in companies that are likely to succeed, rather than ironically supporting America’s favourite failing video game chain. When that happens, then we’ll have a real revolution.