Memes vs Wall Street: how Reddit took on US hedge funds

What did you do this week? I spent it drenched in sweat, launching a vicious assault on Wall Street hedge funds which cost them $5 billion (£3.7 billion). And I didn’t even have to put my trousers on.

Along with thousands of other degenerates, I bought shares in GameStop, a struggling US video game store whose value has soared by 2,000 per cent in the last four weeks. Behind the surge is a wild Reddit community called WallStreetBets, where bored young men gamble on barely researched stock tips and crack tasteless jokes.

The community, whose tagline is ‘like 4chan found a Bloomberg terminal’, has a long and hilarious history of aggressive stock market bets leading to eye-watering gains and losses. In 2019, for example, a clueless 19-year-old member made $700,000 (£510,000) and then lost it all again within two weeks.

But this GameStop episode is different. Armed with stimulus cheques (direct pandemic payments from the US government), thousands of Redditors have piled into one stock. They’re even taking out loans to do it, or persuading their parents to hand them their life savings. And so far, these reckless bets have paid off, delivering six, seven and eight-figure returns.

How did this happen? GameStop is a classic pick for WallStreetBets: a nostalgic gaming brand that has fallen on hard times. And crucially, the financial elite hates it. Hedge funds have been betting against it for a few years now, and it is one of the most ‘shorted’ stocks ever.

When this fact emerged on WallStreetBets, it was a red rag to the bulls — they decided to take on the hedge funds and launch a ‘short squeeze’, where buyers drive up the stock’s price, costing the hedge funds billions of dollars and eventually driving them to give up entirely.

And boy has it worked. The user who first pitched GameStop on Reddit has seen his original investment of $50,000 (£37,000) rocket to $50 million (£37 million). This weekend he celebrated his gains in a video by dipping chicken tenderloins in a glass of Champagne. He still hasn’t sold.

And as the hype grows, GameStop keeps going up. I learned about this whole drama over the weekend, at which point the shares were trading at $65 (£48), already four times higher than on 1 January. Like most people, I was drawn in by greed but won over by the infectious spirit of WallStreetBets. The whole thing is hilarious: the slang, the self-deprecating jokes about ‘my wife’s boyfriend’, the idea that a bunch of clueless average Joes could actually beat financial goliaths.

At the closing bell of each day, the forum is flooded with emotional posts from people who have just made life-changing money. Some of them are genuinely touching. One wrote: ‘I made $100k today. I just called my ex-wife and told her to lawyer up. I’m going for custody.’

I bought some shares at the first opportunity on Monday and spent the rest of the morning one inch from my laptop screen, watching every price change in utter terror. Around lunchtime, the price plunged to $68 (£50) and I panic sold, crystallizing a $500 (£368) loss. It immediately shot back up and I became the only moron to buy GameStop shares and lose money.

Meanwhile, users were celebrating another day of life-changing gains. The general sentiment was that the stock was going to the moon, or $420.69, or more likely $1,000 (£734) and anyone who sold was an idiot and a traitor.

The next day I went straight back in, and since then, the price has quadrupled. It just keeps going up, fueled by hype and the Redditors’ refusal to sell. Yesterday Elon Musk tweeted his support, throwing a lot more fuel on the fire. Already one hedge fund has thrown in the towel, nursing a huge loss. The whole trend has now spread to other stocks which have been shorted.

On WallStreetBets, talk is turning to exit strategies. At some point, they are going to cash in, and when they do, the whole thing will come crashing down. Given the huge gains, it’s amazing none of them have done it already. It makes you wonder: is this really just about greed? Maybe it’s more about the lolz.