02 November 2022

Appreciation - GameStop docuseries

GameStop is a US company whose share price skyrocketed in value due to online hype and anti-establishment sentiment in January 2021, in an episode that made headlines around the world.

Both Netflix and Neon now have documentaries about what happened, and we reviewed them as part of our ongoing “Appreciation” series.

It was framed as a David versus Goliath battle, between “activist” online investors and “greedy” Wall Street bankers. And it showed how powerful, and irrational, the world of online investing can be. 

More than a year on from what’s now known as the “GameStop short squeeze”, Netflix and Neon have released their own documentary miniseries, showing what was happening behind the scenes. (Netflix’s came out in October, while Neon’s premiered here in April.)

Both series begin in 2020, at a time when Covid-19 lockdowns had introduced many ordinary people to online investing, “finfluencers” (financial influencers) had developed huge online followings, and a once-mighty US gaming retailer called GameStop was struggling due to the loss of retail trade.

The decline in GameStop’s stock price had been noticed by two different types of big investors: on the one hand, those who were buying them as they wanted to save the company; and on the other, those who were actually banking on it’s share price going even lower, via a practice known as “shorting”.

Both series explain how this investing tactic works, which is made possible through “stock lending”. In a nutshell, hedge funds “borrow” shares from the owners, then sell them under the assumption they’ll soon be able to buy them for less and give them back to the owner, while pocketing the difference.

With GameStop, what went wrong with the hedge funds’ plans was the fact that a small number of finfluencers noticed that big investors were buying the shares, and started to tell their followers.

The company’s share price then started to climb, from around US$6 in August 2020, to US$19 at the start of January 2021, to over US$100 just three weeks later. Elon Musk even played a part in driving its price higher, simply by tweeting “Gamestonk!!”.

Suddenly it was the hedge fund managers facing bankruptcy, as the price increase meant they’d have to buy the shares back at a much higher price than they’d paid the original “lender”.

It wasn’t until 28 January 2021 – after GameStop’s share price hit US$500 – that it all came crashing down. We’ll let readers find out why by watching either show, although a hint is what one interviewee says in Eat the Rich: “If hedge funds go under, that could bring down the entire financial system.”

Both shows cover the same historical ground but with quite different treatments. Whereas Eat the Rich is more humorous and quirky, including interviews with wannabe rappers and TikTok influencers, Gaming Wall Street is more serious and investigative, seeking to “lift the veil” on Wall Street practices.

Through interviews with online investors who joined the throng, we learn that while some were indeed buying shares to put the “squeeze” on the hedge fund managers (and as one puts it, get “revenge” on them for the GFC) others were just in it for the money.

Despite its title, Netflix’s Eat the Rich leaves you with the impression that shareholder activism played less a part of the story than the media would have us believe. It talks to a number of retail investors who got very rich themselves out of it, including one who turned $25,000 into $8 million.  

Neon’s Gaming Wall Street delves more deeply into how the stock market there works, and reminds us that in investing, usually nothing is free – so while an online trading app may offer “zero commission”, in reality, someone is getting paid somewhere!

Both offer fast-paced and suspenseful viewing that can be easily binged in one sitting, providing a comprehensive summary of one of the more controversial episodes in investing history, and the many facets of modern investing, like meme stocks and the risks of following finfluencers.

The underlying message in each docuseries is to not let emotion and FOMO drive your investing decisions, or as one high-level interviewee puts it: “An educated investor is our best weapon.”

Investing basics

 

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