22 BARRON’S July 12, 2021
depends on people keeping up the
buying pressure to force a short
squeeze or to buy bullish options
that trigger what’s known as a
gamma squeeze.
Many short sellers say they
won’t touch these stocks anymore.
But clearly, others aren’t taking
that advice and are giving the
meme movement oxygen by repeat-
edly betting against the stocks.
AMC’s short interest was at 17%
of the stock’s float in mid-June,
down from 28% in January, but
not by much.
As the price rises, the shorts can’t
help themselves. They start “drool-
ing, with flames coming out of their
ears,” says Michael Pachter, a Wed-
bush Securities analyst who has
covered GameStop for years.
“What’s kind of shocked me is the
definition of insanity, which is doing
the same thing over and over and
over again and hoping for a differ-
ent outcome each time, and the
shorts keep coming back,” he says.
“And [GameStop bull] Keith Gill
and his Reddit raiders keep squeez-
ing them, and it keeps working.”
To beat the short sellers, the
Reddit crowd needs to hold to-
gether, but the community has been
showing cracks at times. The two
meme stocks with the most deter-
mined fan bases—GameStop and
AMC—still have enormous armies
of core believers who do not seem
easily swayed. But other names
seem to have more-fickle backers.
Several stocks caught up in the
meme madness have come crashing
down to earth. BedBath&Beyond
(BBBY) spiked twice—in late Janu-
ary and early June—but now trades
only slightly above its mid-January
levels. People who bought during
the upswings have lost money.
Distrust has spread, and some
traders worry that wallstreetbets—
the original Reddit message board
that inspired the GameStop
frenzy—has grown so fast that it
has lost its original spirit, and po-
tentially grown vulnerable to ma-
nipulation. Some have moved to
other message boards, like r/super-
stonk, in hopes of reclaiming the
old community’s flavor.
Travis Rehl, the founder of social-
media tracking company Hype Eq-
uity, says that he tries to separate
possible manipulators from more
organic investor sentiment. Hype
Equity is usually hired by public-
relations firms representing compa-
nies that are being talked about on-
line, he says. Now, he sees a growing
trend of stocks that suddenly come
up on message boards, receive posi-
tive chatter, and then disappear.
“It’s called into question what is
a true discussion versus what is
something that somebody just
wants to pump,” he says. The mod-
erators of wallstreetbets forbid
market manipulation on the plat-
form, and Rehl say they appear to
work hard to police misinforma-
tion. The moderators did not re-
spond to a request from Barron’s
for comment.
“If you can create enough buzz to
getastockthatgoesup10%,20%,
THERETAILARMY
Single-stock picking has come
roaring back. Retail trading activity
now accounts for 24% of equity
volume, up from 15% in 2019.
Source: Bloomberg IntelligenceRetail Investors’ Share of U.S. Equities
Trading Volume
30%
15
20
25
10
5
0
2011 ’13 ’15 ’17 ’19 ’21
After Q1
“Econo-
mists
can’t tell
people
they
shouldn’t
get some
fun.”
Hendrik
Bessembinder,
Arizona State
University
professor
Keith Gill became
the face of the
Reddit army of
retail traders
pushing shares
of GameStop
higher when he
appeared virtu-
ally before a
House Financial
Services Commit-
tee hearing in
February.
Photographer:
Daniel Acker/
Bloomberg
even 50% in a short period of time,
there’s a tremendous incentive to do
that,” Sosnick says.
The Securities and Exchange
Commission is watching for funny
business on the message boards.
SEC Chairman Gary Gensler and
some members of Congress have
discussed changing market rules
with the intention of adding trans-
parency protecting retail traders—
although changes could also anger
the retail crowd if they slow down
trading or make it more expensive.
R
egulations aren’t the only
thing that could deflate this
trend. Dan Egan, vice presi-
dent of behavioral finance
and investing at fintech Betterment,
thinksthemomentummayrunout
of steam in September. Even “apes”
have responsibilities. “Kids start go-
ing back to schools; parents are free
to go to work again,” he says. “That’s
thenexttimethere’sgoingtobesome
oxygen pulled out of the room.”
Traditional investors may be
tempted to write off the entire phe-
nomenon as temporary madness
inspired by lockdowns and free
government money. But that would
be a mistake. If zero-commission
brokerages and fun with GameStop
broke down barriers for millions of
new investors to open accounts,
it’s almost certainly a good thing,
as long as most people bet with
money they don’t need immedi-
ately. Many new retail traders say
they are teaching themselves how
to trade, and have begun to diver-
sify their holdings.
In one form or another, this is the
future client base of Wall Street.
Arizona State University profes-
sor Hendrik Bessembinder pub-
lished groundbreaking research
in 2018 that found that “a randomly
selected stock in a randomly se-
lected month is more likely to lose
money than make money.” In short,
picking single stocks and holding a
concentrated portfolio tends to be a
losing strategy.
Even so, he’s encouraged by the
new wave of trading. “I welcome the
increase in retail trading, the idea of
the stock market being a place with
wide participation,” Bessembinder
says. “Economists can’t tell people
they shouldn’t get some fun.”B
Connor Smith contributed
reporting. Daniel Acker/Bloomberg