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Folding Ideas・117 minutes read

GameStop stock surged due to pandemic impacts and short selling, triggering a retail investor movement with complex financial implications. The story involves market manipulation, conspiracy theories, and failed expectations leading to bankruptcy for some companies, highlighting the risky nature of speculative stock trading.

Insights

  • GameStop's stock value surged from $20 to nearly $500 in four days in late January 2021, driven by a combination of market dynamics and external factors like the pandemic's impact on physical retail stores.
  • Short selling, a practice where assets are borrowed and sold with the hope of repurchasing them later at a lower price, played a significant role in GameStop's stock surge, leading to a short squeeze that forced short-sellers out of their positions.
  • The Apes, mainly retail buyers attracted by the opportunity to challenge Wall Street, played a crucial role in promoting GameStop on social media platforms and engaging in strategies to counter short selling practices.
  • Ryan Cohen's involvement with GameStop and Bed Bath and Beyond, aimed at transforming these companies, led to fervent support from the Apes community, despite mixed outcomes and controversies surrounding his actions.
  • The Apes' unwavering faith in GameStop and other meme stocks, driven by a belief in the MOASS theory and a desire for wealth and social attention, led to conflicts with traditional stock market norms and a disconnect from the companies' actual financial situations.

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Recent questions

  • What caused GameStop's stock value to surge in January 2021?

    GameStop's stock value surged due to a sudden increase from $20 to nearly $500 in just four days in late January 2021. This surge was primarily driven by a combination of factors, including the worsening situation for physical retail stores during the pandemic, leading many hedge funds to short GameStop in anticipation of further decline. Additionally, the distribution of stimulus packages by governments to counter the economic effects of the pandemic created a sense of hopelessness among the public regarding financial stability, leading to a willingness to take risks.

  • What is short selling and how does it work in the stock market?

    Short selling is a practice where an investor borrows an asset, such as a stock, from a broker and sells it at the current market price with the intention of repurchasing it later at a lower price. The short seller holds onto the full sale value until they return the asset, using it as capital in the interim. Short sellers profit when the asset's price decreases, as they can repurchase it at a lower price. However, short sellers' losses are potentially infinite if the asset's price rises. Short sellers also pay a recurring fee, known as the cost-to-borrow, based on the asset's value, which can erode profits quickly. Holding short positions for extended periods is uncommon due to the risk of high cost-to-borrow fees.

  • Why did Robinhood disable buying GameStop and other meme stocks?

    Robinhood disabled buying GameStop and other meme stocks due to an influx of new users making aggressive plays in the stock market. The CEO of Robinhood cited a liquidity problem as the reason for restricting transactions, as the platform faced challenges in managing the increased trading volume and volatility. This decision sparked controversy and led to a congressional hearing, SEC report, and scrutiny of events, with Melvin Capital needing a bailout due to their reckless short position in GameStop.

  • Who is Ryan Cohen and what role did he play in GameStop and Bed Bath and Beyond?

    Ryan Cohen is an activist investor who aimed to transform GameStop into "the Amazon of gaming." His involvement with GameStop led to wasted capital on closed fulfillment centers, a retraction from global operations, and a non-material NFT marketplace. Cohen's impact as an activist investor elevated him to a messianic role among a passionate fanbase. He also had involvement with Bed Bath and Beyond, triggering a frenzy among investors and a significant price increase. However, his interest in Bed Bath's subsidiary buybuyBABY was based on an outdated evaluation, leading to unrealistic expectations and a controversial divestment after about 9 months.

  • What led to Bed Bath and Beyond filing for Chapter 11 bankruptcy?

    Bed Bath and Beyond filed for Chapter 11 bankruptcy in April 2023 due to financial troubles escalating, leading to a risky deal with Hudson Bay Capital Management known as "death spiral financing." This deal involved buying preferred convertible shares, resulting in massive share dilution and a plummeting stock price. Despite Apes' unwavering faith in the stock, the bankruptcy proceedings showcased the dire financial situation of Bed Bath and Beyond, leading to the company filing for bankruptcy. Despite warnings of common shareholders receiving nothing, Apes remained optimistic, believing the company's assets would still yield profits.

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Summary

00:00

GameStop's Stock Surge and Short Squeeze

  • GameStop experienced a surge in stock value from $20 to nearly $500 in four days in late January 2021.
  • The pandemic worsened the situation for physical retail stores, leading many hedge funds to short GameStop, anticipating further decline.
  • Governments started distributing stimulus packages to counter the pandemic's economic effects.
  • A prevailing sense of hopelessness among the public regarding financial stability led to a willingness to take risks.
  • Short selling involves borrowing an asset, selling it at the current market value, and repurchasing it later, ideally at a lower price.
  • Short sellers hold the full sale value until the asset is returned, using it as capital in the interim.
  • Short sellers' profits are capped by the asset's price at borrowing, while losses are potentially infinite.
  • Short sellers pay a recurring fee, the cost-to-borrow, based on the asset's value, which can quickly erode profits.
  • Holding short positions for extended periods is uncommon due to the risk of high cost-to-borrow fees.
  • A sudden surge in GameStop's stock price led to a short squeeze, forcing short-sellers out of their positions due to escalating costs.

14:54

GameStop Short Squeeze Chaos and Fallout

  • Melvin Capital held a reckless short position in GameStop, leaving them exposed if the price rose.
  • Traders on Reddit saw this as an opportunity and promoted it on social media platforms like YouTube, Twitch, and Twitter.
  • New users flooded Reddit's Wall Street Bets forum, attracted by the chance to hurt Wall Street.
  • Experienced traders grew tired of explaining and new users were onboarded by inexperienced individuals.
  • Users sought quick ways to get into GameStop, receiving hype speeches rather than risk management advice.
  • Political opportunists joined the movement, trying to steer it in their preferred direction.
  • Robinhood disabled buying GameStop and other meme stocks due to an influx of new users making aggressive plays.
  • The CEO of Robinhood cited a liquidity problem as the reason for restricting transactions.
  • The aftermath led to a congressional hearing, SEC report, and scrutiny of events, with Melvin Capital needing a bailout.
  • The Apes, mainly retail buyers, were left holding the bag post-squeeze, with theories circulating about the market's behavior.

29:12

Stock market dynamics and controversies explained.

  • The price of shares can rise to tens, hundreds of millions, or even billions due to supply and demand.
  • Short squeezes require minimal action, just being in the right place at the right time.
  • The memestock belief system is a tangled web of false threads, misinformation, and conspiracy theories.
  • MOASS theories are modular, with the belief in fake GameStop shares being a key component.
  • Apes believe in a vast conspiracy involving Wall Street, short squeezes, and market manipulation.
  • Stocks are intangible legal claims to a portion of a company, with equity markets evolving over time.
  • Stock certificates were used in the past to represent ownership, but the system had flaws.
  • Current securities systems involve securities entitlements and beneficial ownership, overseen by private corporations and the SEC.
  • The stock market has deep-rooted flaws and bad habits, with criticisms of the central depository model.
  • Short selling is a controversial practice that holds significant importance in the stock market.

42:45

Short Selling: Controversial Practice in Stock Market

  • Malaysian Finance Ministry considered caning short sellers with a light punishment.
  • New York Stock Exchange imposed short selling regulations during World War One due to fear of German spies.
  • Short selling concept introduced to some by The Big Short is seen as a personal insult.
  • Short sales can exert downward pressure on stock prices by increasing supply.
  • Short sales are viewed as containing a self-fulfilling component.
  • Short selling is perceived by some as capable of killing profitable companies.
  • Short selling is seen as a financial terrorism conspiracy by some.
  • Naked short sales are discussed, with some considering them illegal and a historical problem.
  • Apes often fail to differentiate between regular short sales and naked short sales.
  • Apes engage in various strategies, including Direct Registration System, to counter short selling and fake shares.

56:42

GameStop Apes Expose Wall Street Fraud

  • MOASS involves buying shares in GameStop, leading to a potential global financial collapse.
  • Apes envision themselves as God Kings of a new economy, trading stock as NFTs on a blockchain-based market.
  • The US government may compensate redditors for their losses in the event of a financial crisis.
  • The concept of MOASS revolves around Wall Street conspiring to harm companies through naked short sales.
  • GameStop's intervention by redditors prevented its demise, positioning it as a catalyst to expose a major fraud.
  • Apes aim to prove the existence of fake shares by conducting share counts and shareholder votes.
  • Shareholder votes are crucial in revealing discrepancies in share counts, potentially indicating the presence of fake shares.
  • Apes believe they own the float and have bought more shares than officially issued.
  • Keith Gill, also known as DFV, played a significant role in advocating for GameStop as an undervalued stock.
  • Keith Gill's investment in GameStop led to substantial profits, prompting congressional scrutiny over potential market manipulation.

01:10:28

"Meme Stocks and the MOASS Theory"

  • "I like the stock" became a shibboleth for commitment to the MOASS cause.
  • Keith Gill distanced himself from the Apes due to the cult leader role thrust upon him.
  • Gill has been retroactively included in evolving Ape lore, with beliefs imposed on him.
  • The term 'meme stock' lacks a clear definition, but examples include GME, AMC, and BBBY.
  • Meme stocks like GME are characterized by gleeful contrarianism and public buying in failing companies.
  • A meme stock is a candidate for MOASS, with GameStop, AMC Theatres, and Bed Bath and Beyond being prominent examples.
  • Apes tend to invest in bad companies due to the MOASS theory's influence.
  • The Apes faced a choice after a shareholder meeting, leading to justifications for an overvote not occurring.
  • Due diligence for Apes involves mythology disguised as research, often lacking in fundamentals.
  • The Ape community's understanding of stock market intricacies has decayed over generations due to skipping foundational knowledge.

01:24:41

"GameStop MOASS mythology simplifies wealth creation"

  • MOASS, a complex scheme, simplified to buying GameStop shares and holding until infinity pool makes you wealthy.
  • Ape DD reproduces existing ideas or creates new mythology in response to issues.
  • Papers reduce to 'buy and hold' without specific MOASS dates or prices.
  • Social media regulates all, evoking QAnon memories, shaped by populism and Reddit's algorithm.
  • DD approved by the community garners Reddit awards, praise, and clout, incentivizing more DD.
  • Atobitt joins the squeeze late, gaining status through community approval and simple DD.
  • Good due diligence presents worst-case scenarios, essential for investment decisions.
  • Decoding becomes explicit DD, influenced by figures like Keith Gill, Ryan Cohen, and Michael Burry.
  • MOASS theory thrives on mythology, interchangeable mechanics, and continuous evolution.
  • Market manipulation via prisoner's dilemma, emphasizing 'buy and hold' with infinite gains and strict orthodoxy.

01:38:41

Market manipulation and groupthink in investment forums.

  • A sense of paranoia is fostered by hired shills, discouraging reasonable questions in investment forums.
  • The illusion of organic decision-making is maintained through group research and confirmation of predictions.
  • Users distance themselves from market manipulation accusations by emphasizing individual decision-making.
  • The fear of legal repercussions prompts a focus on decentralized actions to avoid solo risks.
  • Disclaimers like "this is not financial advice" are used to protect against legal implications.
  • A belief in a forthcoming short squeeze is fueled by mainstream media misinformation.
  • A collective mindset among Apes leads to a shared narrative and distrust in financial institutions.
  • Ape culture combines addictive gambling highs with soap opera-like entertainment.
  • The overconfidence of conspiracy-minded individuals leads to a refusal to reevaluate beliefs.
  • Ape behavior is driven by a desire for wealth and social attention, with a mix of activism and greed.

01:52:22

Cohen's Impact on GameStop and Bed Bath

  • On January 11th, 2021, Cohen was announced to join GameStop's board of directors, becoming chairman in April.
  • Cohen aimed to transform GameStop into "the Amazon of gaming."
  • GameStop's turnaround under Cohen led to wasted capital on closed fulfillment centers, a retraction from global operations, and a non-material NFT marketplace.
  • Cohen's impact as an activist investor is followed by a passionate fanbase, elevating him to a messianic role.
  • Cohen's involvement with Bed Bath and Beyond triggered a frenzy among investors, leading to a significant price increase.
  • Bed Bath and Beyond faced various challenges, including declining sales, supply chain disruptions, and debt from a stock buyback program.
  • Cohen's interest in Bed Bath's subsidiary buybuyBABY was based on an outdated evaluation, leading to unrealistic expectations.
  • Cohen's involvement with Bed Bath ended after about 9 months, with a controversial divestment that raised questions of misconduct.
  • A lawsuit against Cohen regarding Bed Bath's situation was filed but faced challenges due to factual errors and misinterpretations.
  • Apes continued to support Cohen despite the Bed Bath situation, interpreting his actions through elaborate decoding and conspiracy theories.

02:06:03

"Apes' Optimism Fails as Bed Bath and Beyond Declares Bankruptcy"

  • Ryan Cohen is set to announce an acquisition of Bed Bath and Beyond with Carl Icahn, planning to spin off BuyBuyBaby and merge with GameStop to create GMErica.
  • The deal is shrouded in secrecy, with coded messages hinted at through books, suggesting a strategic partnership.
  • Apes, convinced of Ryan Cohen's intentions, rely on cryptic messages from children's books to predict business moves.
  • Bed Bath and Beyond's financial troubles escalate, leading to a risky deal with Hudson Bay Capital Management known as "death spiral financing."
  • Hudson Bay's deal involves buying preferred convertible shares, leading to massive share dilution and a plummeting stock price.
  • Apes' unwavering faith in the stock leads them to ignore the reality of dilution and the dire financial situation of Bed Bath and Beyond.
  • The Hudson Bay deal fails, resulting in Bed Bath and Beyond filing for Chapter 11 bankruptcy in April 2023.
  • Despite the bankruptcy, Apes remain optimistic, believing the company's assets will still yield profits, despite warnings of common shareholders receiving nothing.
  • The bankruptcy proceedings debunk Apes' predictions, showcasing their refusal to accept the harsh reality of the situation.
  • The mythological narratives of Ryan Cohen's involvement and potential rewards for shareholders never materialize, highlighting the stark contrast between Apes' beliefs and actual outcomes.

02:20:34

Stock market apes disrupt trading norms.

  • Stalking horse bids set the pace for liquidations, with rumors suggesting small asset grabs rather than a company takeover.
  • Bed Bath and Beyond needed more time to evaluate offers from GameStop and Icahn Enterprises L.P.
  • Overstock, a $900m company, made a stalking horse bid of $21.5 million for Bed Bath and Beyond's assets.
  • Bed Bath and Beyond officially canceled all shares on September 29th, 2023.
  • Despite shares being void, it will take years to remove them from accounts due to record-keeping laws.
  • Apes in the stock market mirror Wall Street, desiring to be savvy traders seizing opportunities.
  • Apes' behavior decouples share prices from company value, leading to conflicts over stock market norms.
  • Apes' addictive behavior makes them vulnerable to exploitation by grifters and confidence men.
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