Historically, the stock markets have shown the limits of the concept of the “rational economic actor”. The alleged revenge of small investors against financial wolves is no exception.
The action of the sensation of the hour on Wall Street, the video game chain GameStop, lost almost half of its value in a single day on Thursday, closing the session a little below $ 200, still 50 times more than the level at which it had vegetated for months until it took off this fall and went into orbit ten days ago. Other titles she had drawn in her wake suffered the same fate, with the AMC movie chain losing nearly 57% and former Canadian tech star BlackBerry retreating 40%.
The millions of small investors who were behind their surge of the last few days had, however, already had time to derail the clever strategies of large hedge funds that had bet on the collapse of these stocks, forcing them to find billions in disaster to cover their losses. Time will tell how many of those small investors actually got richer in this episode, but there was a sense of David’s victory over Goliath this week on their social media. “Tell the wolves of Wall Street that a pigeon from San Francisco is going to get you,” one of them said Wednesday in the Wall Street Journal.
That one of the challenges of this confrontation is the more than uncertain future of a chain of video game stores in difficulty (GameStop), mainly selling its products in shopping centers, in the midst of a pandemic, seems secondary. It is, they say, to teach a lesson to the speculators who sell in advance shares that they do not yet have, betting that they will be able to buy some, when the time comes, for much less. (short sale, or short selling in English). But it is also, and perhaps above all, for our small investors, to make a lot of money quickly by boosting the value of the shares of the companies concerned at the very moment when speculators finally need to buy them (short squeeze).
All these operations, generally seen as self-regulatory mechanisms of the markets, except during crises like in 2008, were reserved for large investors until digital brokerage platforms allowed amateur investors to buy stocks, or even purchase options, for a fraction of the price. The supervisory authorities are now wondering whether spreading the word on social networks would not constitute a form of prohibited manipulation of the markets. In the meantime, several brokerage platforms tightened their rules on Thursday to reduce the risk of speculation on the hottest securities, immediately contributing to the fall in prices.
In Quebec, the Autorité des marchés financiers on Thursday warned the population against “very high risks associated with any form of stock market speculation, in particular encouraged within certain forums on the Internet and social media”. “The stock market value of some corporate securities has exploded recently, without any credible information indicating that these companies could become more profitable, the organization wrote in a press release. The enthusiasm for these securities may be very short-lived and their value could fall just as quickly. “