2021 shows no signs of being any less eventful than 2020. We’ve already seen an attempted insurrection in the United States, the inauguration of a new president and the emergence of vaccine wars in Europe…and it isn’t even February.
For market observers, however, perhaps one of the most intriguing stories is that of GameStop, GME, the video game company which has now become the first major battleground in an emerging war between individual investors and Wall Street institutions.
At the time of writing, a number of platforms have limited trading on the stock after it rose in value by more than 700% in a week. The resultant “short squeeze” – a phenomenon by which short-sellers caught out by a sudden price rise and have to buy stock to cover their losses – quickly spread to other companies and across global markets. Our data shows that short-sellers have lost over $70bn on US companies alone so far this year…and again, it isn’t even February.
Whilst the GameStop story has dominated the news cycle over the past week, it has been several months in the making. As early as October 2020, we were predicting the possibility of a “short squeeze” on the stock as short sellers continued to build their positions despite a rapid increase in the share price.
Its culmination has been fascinating, and it may not be over yet, but events of the past week point to something more fundamental than a battle over the future of a video game retailer. What we’re witnessing is a reshaping of market dynamics; a shift in the balance of power, driven by improved transparency and access to information.
For generations, the information advantage held by professional investors has allowed the industry to access opportunities and seek profit where others couldn’t. But the emergence of new technologies is dismantling that information advantage and putting power back into the hands of individuals.
Some will question whether this is a good thing and point to risky products or the long term interests of investors. Our view is that regulation has and will continue to have an important role to play in protecting consumers, but knowledge is power and access to it should not be limited or concentrated around a privileged few. That means information and data should be as easily accessible to an individual investor as it is to an institution.
Regardless of the final outcome, the GameStop saga points to an increasing democratisation of the markets, with fairer access and a more level playing field. The information advantage that has maintained the status quo for so long is crumbling, and that has far-reaching consequences for investing, markets and the industry itself.