You may have seen the movie Dumb Money by now. I recently watched on Netflix. However it may not be available on ad-supported plans. This is so strange what Netflix does, giving access or limiting access based on what kind of plans users are subscribed. Even if you haven't seen the movie yet, I am sure you are familiar with the story. That time when ordinary people took on the Wall Street giants and made them feel that "dumb money" can also be dangerous for their investment strategies.
When the movie was first release, I didn't want to watch because the story was too familiar and I thought all that could be told was already expressed in many podcasts, shows, and interviews over and over. There were many lessons learned from this story. We may even see more of this in the future. However, since time has passed it seems the story has been forgotten. I am glad I watched the movie now. It reminded of few things that we want to consider and don't forget. There are several lessons from the story and the movie, but the main one seems to be is the problem with centralized entities, especially when they present themselves to be building networks, products and systems that empower people rather than play against them.
Dumb Money is well produced film. It is entertaining, funny at times, and sad at other times. Because the story itself is incredible. Somebody had to make a movie about it. I am not surprised it was done this fast and of high quality.
Spoiler Alert: Even if you haven't seen the movie, you are probably already familiar with the story. Still I would like to warn you this post may contain spoilers. That said, my purpose is not to retell the story. But rather focus on few topics I find interesting and lessons that shouldn't be ignored.
The protagonist of the story is Keith Gill, a Youtuber with username Roaring Kitty, who also posted on Reddit under username DeepFuckingValue. I am not 100% convinced that all GME price movement happened because of Keith's youtube videos and reddit posts. There is more to it. Of course these days random things can go viral and take attention of many. While I don't think all had to do with Keith Gill's social activities, he did play an important role in being early adopters of the strategy to buy and hold GME and having done extensive and convincing research why it is a great trade idea. I say this because later questions of wether Keith did anything illegal promoting the trade idea is kinda explored. I don't think it has any merits.
I am super impressed with the conviction Keith had about this simple trade idea. Just one trade idea. No distractions, nothing else. And taking this trade position when everybody would think it was too risky. In simple terms, the idea was GameStop's stock $GME was over-shorted, if there such a terminology. Short float at the time was 130%. This was one of the questions raised when all the drama happened. How is it possible short a stock over 100%. Apparently it is possible, and is kinda legal. Many brick and mortar store have been struggling a few years ago, and still struggling since online commerce emerged as competition. With innovation comes competition which may result in disappearance of businesses. Clearest example is Blockbusters going bankrupt, Netflix and other streaming platform emerging as new form of doing the same kind of business. Similar thing had to happen GameStop as well. That is how big investors were evaluating the business and of course found an easy target to short. But not on Keith's watch. Keith saw the potential. Moreover, he kept repeating he likes the stock, which is plausible as well. GameStop has been a great company for a generation of people. Call it nostalgia or some sympathy, but GameStop was a great idea for its time and it has served many people for many years.
Many investors in fact recommend investing in companies we like. If we like the company and believe it will be around for years and decades to come, it may be a good investments some investors would say. The question has always been if GameStop will exists in years to come. I digress. It doesn't matter if anybody actually likes the company or the stock, they have a right to do so, and/or invest. Saying "I like the stock" makes perfect sense. Why invest otherwise? I also would like the stock if I had the similar research, conviction, and money to invest at the time. What is really impressive about Keith is, he truly believed in this trade idea. He invested their life savings early on, kept holding the stocks, and while waiting for some miracle to happen he shared his ideas in social media.
Two platforms that play a role in Keith journey is Youtube and Reddit. Wallstreetbets community on reddit like the trade idea as well, and something interesting starts happened. $GME price starts going up and up and up. Just like Keith predicted. In the meantime Keith excited his trade idea is playing out as he expected continues to hold the stock and continues sharing his views and opinions. More and more people join the journey. Now I am impressed how many ordinary people saw the trade idea as good one as well and started investing. Amazing story. But also sad story for people who ended up losing money. Not because it was bad trade idea. Because of evilish actions of centralized entities and perhaps some collusion and corruption.
The goliath of the story is the large investment firms that had large short positions on $GME. But I don't view them as villains. At least not the main villains. They may actually be victims of this story. They too had a good trade idea. Shorting $GME was a no brainer. The problem was over-shorting, going too greedy that it would be difficult to get out of the position without massive losses. They didn't expect "dumb money" or retail would be able to drive the price so high that it would cost them a lot. This hasn't happened before. Now it did.
Two entities I truly dislike in this story are Reddit and Robinhood. I would categorize their actions and manipulating the markets. I don't think they were deemed illegal by powers who regulate and monitor such actions, and nobody really faced the consequences for their actions. I don't remember much what role Reddit play in shutting down the subreddit Wallstreetbets in the middle of this massing $GME rally. But according to the movie that is what happened. The subreddit was shut down and not accessible for people for a long time. This created a panic reaction. If Reddit as company was involved in this, this is really bad. Why? What are doing? I thought Reddit was built with an idea of empowering people. I guess they lied, just like Robinhood did. What Robinhood did was just terrible. They stopped trading of $GME and other stocks that became part of this story. If I remember correctly people could sell their stocks but couldn't buy, because clearinghouse alerted Robinhood that they need to deposit billions or something like that. I don't buy the explanation. That seems to convenient. At the time it kinda explained a little bit. Because other platforms who stopped trading of $GME also used the same excuse.
Let's fast forward to today. Both Reddit and Robinhood now are publicly traded companies. This wasn't the case when this GME drama happened. Unbelievable. Maybe their actions that time help them to become publicly traded companies. Sad part is both were created with an idea of empowering people, and both betrayed the idea. Perhaps it was lie from the beginning, and it all was a business strategy to deceive the masses.
We need decentralized solutions. Centralized bunch will continue caring about their own enrichments, and would mind doing so at the cost of their customers or users. Let me know your thoughts in the comments.