GameStop: A Look Back at the Reddit Frenzy

by Warren Seah

The GameStop phenomenon of January 2021 is still fresh in investors’ minds as the company prepares to release its latest financial results. It was during this time that the Reddit WallStreetBets message board played a pivotal role in fueling an unprecedented surge in GameStop’s stock price. However, the unexpected frenzy came to an abrupt end when trading restrictions were imposed by brokers.

In a recent podcast hosted by Patrick O’Shaughnessy, Will England, the CEO of hedge fund Walleye Capital, shared his perspective on the events that unfolded. England represents one side of the narrative often portrayed as the villains – the hedge funds that engage in short-selling, effectively betting on a decline in stock prices. Notably, Melvin Capital, a prominent hedge fund, even shuttered its operations due to significant losses resulting from its bets against GameStop.

The podcast conversation shed light on the realization that the Reddit community’s influence could have far-reaching consequences within the financial world. England discussed the urgent need to incorporate Reddit’s insights into their trading systems and develop tools to monitor social media platforms like Twitter, allowing them to identify potential targets quickly. He likened this process to playing a game of whack-a-mole, always trying to stay ahead of the ever-changing dynamics of online communities.

GameStop’s upcoming financial report will undoubtedly provide insights into the company’s performance in the wake of these unprecedented events. Investors and market analysts eagerly await these results as they assess the impact of the Reddit frenzy on the company’s future prospects.

Stay tuned as we continue to follow this captivating saga.

The Hedge-Fund Industry’s Unsettling Conversations

During a critical period in time, England delved into the conversations taking place within the hedge-fund industry. The prevailing sentiment seemed to suggest that shorting stocks would never be a viable option again. The realization struck hard—England and his team needed to reevaluate their entire book, a daunting task indeed. According to a transcript of the podcast, England vividly recollected, “I distinctly remember hearing a rumor that week about Citadel instructing its traders to drastically reduce their positions.” However, he dismissed the rumor, refusing to believe it.

Trusting Intuition Over Speculation

When questioned about how he was so sure that Citadel hadn’t truncated their short bets, England admitted that he had not personally spoken with anyone at Citadel. It was a matter of trust in his own intellectual intuition, as he explained. As a core aspect of Citadel’s strategy involved shorting securities, England asserted that deviating from this principle would represent a substantial departure from their stated operating principles. Additionally, such a move would likely have an enormous impact on the market as a whole. To express his disbelief more forcefully, England put it bluntly: “It’s like someone telling you to cut off your own nose just because you have a bloody nose. It simply doesn’t make sense.”

The Resilience of GameStop

Amazingly, despite experiencing losses in seven out of the last eight quarters, GameStop’s stock (GME, +4.40%) continues to trade at levels higher than before the extraordinary events of 2021 unfolded. In light of this persistent momentum, many wonder what lies ahead for the company in its upcoming quarterly results.

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