L ess than a month into 2021, the world watched in amazement as the stock price of the then-troubled American brick-and-mortar video-game and consumer-electronics retailer GameStop skyrocketed after countless traders, mainly from the popular Reddit sub-forum wallstreetbets, bought up the company’s shares in droves.
What’s more, they did this in defiance of major hedge funds on Wall Street that had already deemed GameStop to be overvalued and shorted the stock, meaning that they borrowed stock in order to sell it in the hope that its price would fall, after which they would buy the stock at the lower price and thus secure a sizeable profit. But by driving up the price instead, the Reddit traders inflicted a “short squeeze” on the hedge funds, whereby they would have to purchase the stock at a much higher price and thus incur billions of dollars of losses.
The entire episode harkens back to the days of October 2008, when Porsche inflicted a similar short squeeze on Volkswagen (VW), its fellow automaker and occasional but long-running business partner. Indeed, right in the midst of the global financial crisis (GFC), when following the collapse of Lehman Brothers investors were panic selling across the world and markets were tanking, the “mother of all short squeezes” arose, as one analyst at the time put it.