David took on Goliath and lost – If only it was that simple

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Over the past couple of weeks, I’ve had some interesting conversations with both day traders and financial professionals about the GameStop saga. As it now seems that despite the hype, it was the little guy who lost out to the bigger guy in the end. When retail trading apps such as Robinhood, which states as its mission to “democratise finance”, closed off trading to amateurs, professional investors were still executing trades worth hundreds of millions on platforms available only to them.

David took on Goliath and lost. If only it was that simple.

Many have pointed out that the leaders and initiators of the GameStop short squeeze were not your average retail investors. The sophistication to recognise the synthetic positions taken by the hedge funds and the capital needed to initiate a short squeeze are not common in the playbook of your average day trader. For instance, the Reddit user who began the GameStop squeeze placed an initial investment of USD 53,000 on GameStop.

On the other hand, the Redditors that took part in the short squeeze were motivated by something else than profit. In their minds they were fighting to preserve something that they held of value, a company that many of them, belonging to the same demographic as regular gamers – young and male, viewed even with some nostalgia. They saw themselves in the trenches, willing to accumulate losses fighting for something they believed in. A slogan that comes to mind from that narrative is the Brexiteers’ chant to “take back control”. One user on WallStreetBets forum with a username mwybert said: “Guys. This only works if we work together. buy the dip and hold. for all of us. the movement isn’t over. Balls of steel…” Another, calling himself Zachincool declared: “we do not leave each other’s side!”

I think one of the interesting questions around the GameStop saga is whether there is a need for the financial world to address this phenomenon, coined as “platform populism” by Evgeny Morozov, in his recent article in The Guardian. What are the main takeaways from the GameStop story, which is still unfolding? As institutional investors are putting increased weight on social and political events in their investment analysis, should the GameStop event be brushed aside as an infrequent phenomenon with little significance to the overall picture? Or should it be considered as something more sinister that has the potential to disrupt the market with increased frequency in the future, especially now that the rise of the online platforms and tools have given an avenue to anyone with some spare cash and time to participate in the financial markets.

Rather than addressing the populist phenomena, Timo Löyttyniemi writes rather dismissively: “Both oddities – lack of pure profit-seeking and the emergence of hate – are forces for which there is no room in the marketplace. Both may lead to losses that erode the capital and drain strength. Such features are extremely unbecoming for a private investor, let alone an institutional investor. Gamestop investment was for many only a game.”

I agree on the message; elements of populism have no place in the marketplace. However, can we afford to dismiss the fact that the same sentiment that has brought us Trump and Brexit, is alive and well among certain demographics that feel disenfranchised by the rest of the society. How can we address this in the financial market to prevent disruptions in the future? Or are disruptions, such as the GameStop event, something we should start preparing to see more going forward?

The recent GameStop saga has cast a light on the trading platforms that offer access to the market for retail investors lacking the access to professional platforms used by their more sophisticated counterparts. However, the GameStop incident does not only reveal some fundamental flaws in the financial system or in the mission statements of these retail platforms such as Robinhood that likes to paint itself as revolutionary, disruptive force enabling the little guys to take on Wall Street. It also highlights another interesting phenomenon that many are more familiar with from the world of politics. Timo Löyttyniemi, CEO of Finland’s government pension fund VER, points out in his latest blog post that there were two unusual characteristics that defined the GameStop incident: lack of pure profit-seeking and the emergence of hate. “Hate speech pitting small investors against big ones created a David-and-Goliath situation. Some even mentioned anarchy,” he writes.

Over the past couple of weeks, I’ve had some interesting conversations with both day traders and financial professionals about the GameStop saga. As it now seems that despite the hype, it was the little guy who lost out to the bigger guy in the end. When retail trading apps such as Robinhood, which states as its mission to “democratise finance”, closed off trading to amateurs, professional investors were still executing trades worth hundreds of millions on platforms available only to them. David took on Goliath and lost. If only it was that simple. Many have pointed out that the leaders