It’s sound advice to never underestimate the power of a community, especially when they gather together with a common vision. The past week has been full of newsworthy events showing how one small online community on Reddit called WallStreetBets has garnered worldwide attention by taking on some of the biggest hedge funds on Wallstreet. The showdown occurred when Melvin Capital sought to short sell the Reddit communities favourite video game retail store, to which the community banned together and started buying up the stock in order to beat the hedge fund. The story is still being played out on the news, and has even reached the attention of the U.S. president. It is a story fit for a movie, and when it does reach theatres the Reddit community will be watching it at an AMC theatre (another stock the group seems to love).
The WallStreetBets community started in 2012 by Jaime Rogozinski who was working as an IT consultant for a development bank in Washington DC. Jamie liked investing and he found that most of the Internet communities he was a part of didn't share his pension for high risk trades. Feeling like an outsider within the investing community, he sought to create his own community with like minded individuals who also enjoyed high-risk trades to make some quick cash. The results of his community in terms of defeating the odds of betting on stocks that others wouldn't touch seemed to defy the odds.
Like most online communities, WallStreetsBets started small but in five years time they reached 100,000 members, by 2017 the community increased dramatically to over 1 million members. As the community reached new heights so did the interest from outside companies looking to use the power of WallStreetBets community for commercial purposes. Jamie Rogozinski wrote a book about his experience starting the community, and shortly after announced the community would be holding an esports style trading championship which was connected to an e-trading platform.
The moderators and members did not like the fact that the community had been infiltrated by an outside company. Some documents were leaked showing that Jamie had attempted to sell the rights to the community to a trading platform for a 6 figure amount. The moderators then ousted the creator and “liberated” the community as they put it, and restored it back to its original purpose. So what is their purpose? The purpose of the community seems to be for average joes to harness the power of their community to collectively decide on companies that they like, but in whose stock prices are failing and attempt to drive up the price through their network of retail investors. These stocks include AMC, GameStop, Nokia, and Blackberry to name a few.
The trouble playing out in the news this week with WallStreetsBets has to do with one of their top stock picks GameStop which Melvin Capital sought to short. The short was coming due this week and the members of the community knowing this, started investing heavily, and by so doing drove up the price over 400% causing the hedge fund to lose around 3 billion. However, the drama did not stop there, the platform Robinhood who was one of WallStreetBets community favourite trading platforms had been unknowingly compromised by Citadel Capital who was shorting GME through Melvin Capital. Citadel Capital had been purchasing data from Robinhood and was one of their biggest customers. So Thursday in an effort to strike back, Citadel brokered a deal with Robinhood to turn off the ability to buy any more GME stocks, and a list of other stocks WallStreetsBets favoured, and only allow the sales of these stocks in order to drive down the price. And so begun the war between a small online community and a hedge fund company worth billions.
The fallout has been catastrophic for Robinhood as the customers have turned on them. Once news broke of the link between Citadel, Melvin Capital and Robinhood the community began instructing members to delete the app and leave reviews on the Google and Apple App Store. What was once branded a brokerage firm for the little guys is now being described as a false narrative and the fallout for the brand is devastating. The power of a community to take on challenges can never be underestimated. While this story does not directly relate to the research world, it is an exciting tale of how communities, whether branded or social have the power to transform and overcome huge obstacles.
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