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The Revolution Will Be Game-ified
January 30, 2021
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January 21, 2021   

Our webinar on how to integrate ESG in quantitative strategies: your 2021 roadmap. Jan 21st 2021 and On-Demand.

Latest Press

January 29, 2021   GameStop-Robinhood revolution: Stock frenzy echoes anti-establishment anger behind Trump rise, analysts say  Michael Collins Jessica Guynn Sarah Elbeshbishi, USA TODAY

This week's GameStop battle was the latest in a smoldering revolution - a revolution embodied in a cute Shiba Inu (and a few rainbow ponies).

Dogecoin. wow

Dogecoin is a cryptocurrency started as a joke, and it is worth $6.7 billion (as of Jan 29, 2021).

Dogecoin is a meme that resonates widely perhaps because it has no “fundamental” value. It’s human - or canine - whatever. The point is, it isn’t useful. It has no tangible value, yet it has grown to a market cap of $6.7 billion.

Say "Hello" - or "good boy!" - to a new investing fundamental – the meme.

As a meme Dogecoin carries a simple and deep emotional value - truth, loyalty, joy, fairness wow - and absurdity. These are all qualities missing in modern institutions and in many of our day-to-day interactions with business.

Us serious finance people missed the fundamental value of absurd joy in its early years, and now the joke is on us in more ways than Dogecoin.

The GameStop short-squeeze is hypothesized by the intelligentsia to be an eruption of frustration against alienation and elites, but it is far from the only battle in this smoldering revolution. Dogecoin was among the first – brilliant – manifestations of the shifting boundary between institutional control and decentralization.

Don't Stop Til You Get Enough

So you can see the relative magnitude of the Reddit mob activity, below is the volume of online chatter about GameStop versus all other highly discussed companies on Thursday January 27, 2021:

And here is a video of that buzz evolving over the 10 days leading up to this weekend:

 

Is the Revolution Predictable?

Using the news and social media data we produce (you can read more about it here), we found that jumps in online buzz correlate with Gamestop’s share price the following day. Anecdotally we see this effect in many speculative assets, although we haven't comprehensively studied it.

More attention => stock price pop?

This insight is a strategy used by professional traders:

“Mark Sebastian, founder of Chicago-based Options Pit and an options trader for around 20 years, has developed a screener analyzing reams of stocks to spot those with heavy activity from individual investors. He buys or sells options based on which stocks are gaining momentum, trying to ride the wave higher or lower. Recently, this included AMC, though he said he wasn’t a fan.

“We’re trying to get on these names before they completely take off,” Mr. Sebastian said

Julia-Ambra Verlaine and Gunjan Banerji. Jan. 29, 2021. Keith Gill Drove the GameStop Reddit Mania. He Talked to the Journal. - WSJ.

This effect is well known outside of finance where some people become famous not for any special merits (I’m looking at you Kardashians), but simply because they did something scandalous or boundary breaking and cleverly leveraged the resulting coverage from news and social media.

It’s not only celebrities. A jump in fame seems to increase the prices of stocks and cryptocurrencies as well. It’s not just repetition that breeds fame, there also must be some emotional resonance.

 The Emotional Drivers Behind the WallStreetBets (#WSB) Revolution

A lot has already been written on GameStop. Here are a few of the best summaries I’ve found:

  1. GameStop Mania Reveals Power Shift on Wall Street—and the Pros Are Reeling - WSJ
  2. Keith Gill Drove the GameStop Reddit Mania. He Talked to the Journal. - WSJ
  3. GameStop Short Squeeze Is Rage Against the Financial Machine - Bloomberg
  4. The Nihilism Of R/Wallstreetbets - jeromysonne.com
  5. GameStop, Bitcoin and QAnon: How the Wisdom of Crowds Became the Anarchy of the Mob - WSJ
  6. The GameStop Fiasco Proves We’re in a ‘Meme Stock’ Bubble - James Surowiecki

Some of the key psychological themes these articles describe are:
1. Mob mentality
2. Anger at injustice
3. Nihilism & alienation
4. Gamification

Mob Mentality

“From the Rohingya ethnic cleansing in Myanmar and WhatsApp-related killings in India to the Capitol riot and the stock-market takeover, these individual phenomena are each unlikely, but social media all but guarantees more of them. The leverage the algorithms provide for those who wish to spread these ideas, however extreme, gives them the ability to reach us all.”

Christopher Mims. Jan. 29, 2021. “GameStop, Bitcoin and QAnon: How the Wisdom of Crowds Became the Anarchy of the Mob.” WSJ.

This is a cause, a revolution. The mob's behaviors and feelings - even their sleep patterns – are evident in the real-time flood of #WSB postings we collect.

Anger and Alienation

“As I’ve said before, if we accept as normal and unavoidable that everything in our lives can be aggregated and sold, we lose so much more than data, we lose the freedom to be human.”

Tim Cook condemns Facebook business model, says valuing engagement over privacy leads to ‘polarization' and 'violence’ - 9to5Mac

Those of us called consumers, economic agents, retail traders, Robinhooders, and deplorables (some of the many phrases used to dehumanize individuals) are, unsurprisingly, feeling a bit resentful. See #FightClub for how that works out.

Below is an image of Anger around GameStop in social media. The burst in anger in the middle of the chart is expressed at both short-sellers and at GameStop itself. Then the #WSB crew, motivated by anger, began organizing. They directed their energy to action rather than angry whining - and they made history.

John Authers describes a rage-fueled short-squeeze mob here GameStop Short Squeeze Is Rage Against the Financial Machine - Bloomberg

As many commentators have said - but it bears repeating - social trust in institutions was irreversibly frayed by the global financial crisis (GFC). In an organized society we expect fairness. Wrong-doers are punished – that’s fair. After the internet bubble, clueless investors who bought at the top lost money – that was their fairly-received punishment. After the GFC, the mortgage quants, salespeople, and executives responsible – Wall Street - were not held to any standard of justice. Many even received bonuses. However Main Street was economically punished for Wall Street’s greed.

Main Street felt more than betrayed. There was a deep sense that society – the balance of fairness – no longer held true. The elites made off well, everyone else suffered. That’s enraging. Such injustice powers global revolutionary movements. Donald Trump channeled that rage to an extent, and other politicians have harnessed it too.

Such anger at elite unfairness turned on Robinhood itself on Thursday when they stopped the game (which may have been hurting a key customer). Keep in mind that selling retail trader order flow data generates most of Robinhood’s revenue. Citadel alone was said to generate 40% of Robinhood’s revenue in 2018 according to ZeroHedge. I don’t know what actually happened, but it could look like Robinhood is unfairly protecting a big hedge fund client with short exposure over its millions of users (those who generate Robinhood’s best product – their own digital exhaust).

Nihilism

In a meme recently appropriated by the WallStreetBets crowd, the Joker, portrayed by the late Heath Ledger, sets fire to an enormous pile of cash. “It’s not about the money,” he says. “It’s about sending a message.”

Christopher Mims. Jan. 29, 2021. “GameStop, Bitcoin and QAnon: How the Wisdom of Crowds Became the Anarchy of the Mob.” WSJ.

whatever

Gamification

These lockdowns are doggone isolating. But, online connections with a shared mission powerfully connect us. The ease of organizing on Reddit and trading on Robinhood created a feeling of joy and fun. It’s a group on a mission.

Many in the mob are in a collective, no longer overly concerned with individual gains or losses. They are playing this “game” without emotional attachment to the ups and downs – more as a form of entertainment – posting big wins and big losses for others to comment on as a group process. If the group wins, we all win.

Is ESG the Answer?

“If a business is built on misleading users, on data exploitation, on choices that are no choices at all, it does not deserve our praise, it deserves reform.”

Tim Cook condemns Facebook business model, says valuing engagement over privacy leads to ‘polarization' and 'violence’ - 9to5Mac

Selling users' behavioral data as a commodity can seem dehumanizing to users. That doesn’t mean it is wrong (assuming consent), and the "free" products sure are nice...

The rise of ESG investing is a sign of the public's desire for a more responsible and personal approach. ESG considerations are already influencing $40.5 trillion in global assets (Pension and Investments, June 2020) and forecast to direct half of all U.S. assets by 2025 (Deloitte).

“Responsibility” is a key tenet of ESG investing – responsibility for the future and all stakeholders. Stakeholders are much broader than shareholders and include anyone affected by the downstream effects of business conduct. We’ll discuss ESG in more detail in our next monthly newsletter.

Reforms?

Investors want online convenience and connection, but more deeply they want fairness and justice. Institutions that are perceived not to provide those are unsustainable and vulnerable to the mob.

In terms of governance, democracies that respond to social feedback via elections should be long-lasting. However, there is an “elite” revolving door between elected office and special interest lobbying. The GFC perpetrators were possibly not punished because financial regulators were their former – and possibly future - colleagues. The fox can’t guard the henhouse.

In terms of algorithms in media, we’ve written about those before. I monitor the media for a living, and I don’t let my kids engage with it. I also have strict limits on my own time I spend on email and other online distractions. It’s not good to let Google or Facebook algorithms control ours or childrens’ attention. Check out the movie The Social Dilemma if you haven’t already.

Can the revolution do permanent damage to the democratic system and markets? We’ll have to wait and see. Markets and investors are spooked by what happened this week, and I won’t be surprised if – despite the stimulus - the market corrects in the next few weeks.

Until next time, wow!

Joyful Investing!

Richard Peterson and the MarketPsych Team

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