For those out of the loop, January 2021 was an unprecedented time for the US stock market. In short, the price of Gamestop’s stock went from 20USD/share on 11 Jan to 300USD/share on 28 Jan because of Reddit (with more potential to increase). This is a 27x, or 2700% increase, which is INSANE. I’m not even sure if anything like that has ever happened in history. If you had bought USD$10,000 of Gamestop shares when it was 20USD/share, they would be worth USD$270,000 now.
There are many articles that sum up what happened a lot better than I ever will; this is one of the best:
https://www.theverge.com/22253363/wall-street-bets-verge-stories-gamestock-reddit-discord
If you want to read my TL:DR, you can read my blue text version, or skip down to the next part of this post, where I talk more about my personal experience in this drama.
- On Reddit, there is a subreddit called r/wallstreetbets (“WSB”), where people (mostly Americans) with money post memes about stocks and blindly swing money at random stocks with reckless abandon, akin to degenerate gambling (this is not an insult; they openly call themselves so)
- Since last year, one user had been regularly pumping money into Gamestop shares despite it not doing well, and consistently losing money, but this drew the attention of many Redditors and interest in the stock rose.
- Towards end of last year / early 2021, some real life events involving the CEO of Gamestop and other famous investors triggered further interest and buying of Gamestop’s shares, which further drove up the price.
- This momentum got into full swing and many people jumped on the hype train and bought Gamestop shares, driving up the price like crazy. Mainstream media picked up on it which added more hype.
- This is bad news for those who shorted the stock (i.e. bet against the market, hoping it will go down), as their potential losses was unlimited. Regular investors who shorted the stock quickly bought back in to cover their losses, and this drove prices up.
- Professional hedge funds who shorted the stock (every1 expected the hype to die down… eventually?) are now in serious trouble, as the stock has shot up exponentially. They will eventually have to exit their position (i.e. buy shares) which will FURTHER drive up the prices.
- Several real life events led to it being painted as a ‘average investor’ versus ‘the top 1%’ battle now; the poor vs the rich; a David vs Goliath situation, and WSB was eager to hold and drive up prices further to ‘stick it to the man’.
I wanted to jump on the hype train for fun, and my experience with this made me realise I will never be a day trader. The emotional roller coaster is just too much!
The Stop Loss Mistake.
I decided on a small amount that I was willing to lose entirely, and bought some Gamestop shares for fun, @$81.50/share.
Despite being a 'throwaway amount', there was of course still some pinch to it. Before I went to bed, I decided to set a stop loss at $70 (i.e. if the price falls below that, it will trigger a sale, limiting my losses) as I was scared to lose more… which turned out to be a big mistake.
When I woke up the next morning, I realised the price swung down below $70 and triggered my sale for $69.50, but the share price closed at $89!
I learned two things from this – first, I needed to be more aggressive with the stop loss - $70 was only 15% below my entry price, and a volatile stock would swing more. Second, I should have set some sort of profit goal, to be happy to cash out some time. The price actually swung up to $150 during the day of trading; it would have been a cool 80+% profit.
The Re-entry
Throughout the next 1-2 days, the share price actually continued rising, eventually reaching $200/share or so. I was monitoring Reddit closely, and based on general sentiment, it was going to keep going up. Remember, this is very bad for hedge funds who have to close their position soon to cut their losses, which will drive the price further up.
Despite this being speculation, I found the logic compelling, and wrestled with the decision for a while before thinking - heck it! When I started this I was prepared to lose this sum of money. So... I reinvested it at next market open @$213.50/share.
There were some real life events that pushed the price up and down (you can probably read more in the article linked above). One of that was where one of the hedge funds that was in danger of going bankrupt over their massive short positions actually went on some news channel to say that they managed to exit their short positions. However the market data (based on # of short positions) didn’t indicate a large hedge fund exit, so many Redditors felt that they were lying to try to get people to sell off their shares. Not sure which is true, but Redditors were enraged and kept buying more and rallying people to buy and hold strong.
The price actually fluctuated up to $350 before I went to bed; this time I set a profit goal of $400 (auto sell if it reaches that level). I didn't set a stop loss this time. I didn’t sleep well at all, waking up once or twice thinking about it. I checked the prices once when I woke in the middle of the night, hoping that my sale was triggered so I could put my mind at ease... but it wasn't. Damn.
On hindsight, I'm not sure why I was so worried, given I was already prepared to lose the amount. But there is something dangerously addictive about checking the share price and watching it jump up and down, each upward spike a dose of dopamine and each downward spike triggering a shudder of unease. It was like a drug.
In the morning when I finally checked, I realised the peak it hit was $380, and market closed at $350… but post-market trading seemed to be moving the price down.
The Drama
As I was still lying in bed browsing WSB, two things happened – first, news came out that their Discord server got BANNED by Discord. What? Then next, the subreddit itself became inaccessible. Was it US govt intervention (as you can imagine, there could be allegations of market manipulation when people rally behind a stock on an online forum)? Could it be big hedge firms DDOSing or using money to silence the wallstreetbets movement?
Whatever it was, the price began falling, and it seemed like people were panic selling their stock in this momentary info blackout.
I must admit, I felt real panic as the price plummeted fast, from $300+ to $210, and my fingers hovered over the buttons to trigger a sell order, as my mind raced through quick mental sums as I evaluated how much of a loss I was willing to take. Was it an end to the fairytale?
But soon a temp WSB subreddit sprung up, and people were posting there to hold strong. Some speculated that the initial price dip was orchestrated by the hedge funds themselves, to try to drive panic selling – and was a well-coordinated effort which included banning them on Discord. Who knows. Nonetheless, the main subreddit opened up shortly after, and the price stabilised and went back up to the high 200s, ending post-market at $290/share.
Time to be a spectator
As much as this roller coaster ride was thrilling, I think it’s time for me to exit. This is highly addictive - constantly checking the news and subreddit, and wanting to check the stock price - and it's disruptive to my life.
If I was to be truly logical and shut out my emotions, I actually do believe the price will keep rising. At time of writing on Thursday, many are speculating that Friday will see the biggest surge in price as many options expire, and the exponential growth in price is only just beginning.
I don't even see how this could end; it's just a game of chicken between the everyday man at WSB vs the big boys at the hedge funds. With the constant rallying to 'hold strong' on Reddit, it would take something monumental to shift the momentum to get people to give up on their positions to eventually trigger the reverse movement back down. Or the share price just reaches an absolute amount that is hard to rally behind (e.g. above $1k/share) as compared to when it was in the 2-3 digits. I actually do think WSB will win, and the hedge funds will eventually give up on their positions, which will drive the price up further.
But I think it’s too much for me. I am stressed out checking my phone non-stop when market opens, checking Reddit to keep up to date with latest developments throughout the day, and I’m losing sleep over it. Sure, I could make a tidy profit at the end of the day, but at what cost? There is no clear end in sight, and it could come crashing down anytime like a house of cards.
When pre-market trading starts today, I will be waiting about 15 minutes to see how the price trends, and set a lowish profit goal from there, planning to exit before market opens.
I will sleep easy tonight, and watch this spectacle unfold from the sidelines. Good luck to those still in, and I won’t be surprised to see the price go nuts… but enough is enough for me.
