Since the pandemic, an increasing number of everyday Joe’s have been trying their hand at trading. Latest on the agenda: GameStop (GME), whose stock price has risen by almost 8000% over the past six months.
A crash course in GameStop
GameStop is an American video game retailer that hasn’t been doing too well due to the coronavirus crisis. As a result, GameStop has been the subject of short selling, which is essentially when professional investors or hedge funds bet that a company will fail, hoping to profit in the long run.
However, an army of amateur investors who actively discuss stocks on the Reddit subforum r/wallstreetbets caught wind of hedge funds shorting GameStop stock. Consequently, a huge volume of day traders bought GME stocks, causing the stock price to rise and ultimately resulting in a short squeeze. In other words, a financial power struggle between major hedge funds and Reddit day traders.
On Tuesday 26th January, GME became the centre of a media frenzy when Tesla CEO Elon Musk tweeted: “Gamestonk!” Wallstreetbets (WSB) accumulated five million new users overnight. Just two days later, GameStop stock price reached an all-time high of $483.
What’s this got to do with language?
Beyond the statistics and financial jargon, we wanted to understand what exactly this so-called Reddit army were saying. How did a group of internet investors influence the American Stock Market?
To find out, we used Relative Insight to analyse over two million words from r/wallstreetbets over the past month. Using the split functionality, we split the forum data by timestamp in order to compare conversations before and after Elon Musk’s Tweet (26th January). Relative Insight finds the linguistic differences between two time periods, revealing how opinions and sentiment are constantly changing.
1st – 25th January
YOLO meaning you only live once. The modern day Carpe Diem. Or in this case, an excuse to put your entire life savings in risky stock. Before GME stock reached its peak, Redditors were 3.7x more likely to use the word Yolo in their conversations, suggesting excitement and brash decision-making when it came to investing in GME.
The phenomenon of ‘meme stocks’ and platforms such as Reddit can have a major influence on the stock market. As seen with the rising stock price of GameStop. During this period, Redditors also discussed other companies worth investing in such as PLTR, NIO and TSLA. Professional investors should take note and invest in technology that can monitor such conversations as a way of staying ahead of the curve.
To the moon
Before GameStop was picked up by the media, the narrative on Reddit was simple. Stocks are only going to rise, so why not pile into it, drive stock price up and ride the rocket ship? GME to the moon!
Taking on “boomers”
The idea that Reddit users were fighting against Wall Street had begun to surface. Redditors discussed the big players in the game, referring to them collectively as boomers (an insult on their age) and positioning them as the enemy. Did this stem from deep rooted anger at those investors who were bailed out during the financial crisis? Probably.
26th January – 1st February
Mass media interest in this story really exploded on 26th January. GME stock had suspiciously started to rise and the wealthiest man in the world captivated the attention of Twitter. At this point, the role of the media came under fire from Redditors, who accused news outlets of producing false information as a distraction i.e. the rise of silver stocks.
A battle between them and us
After Elon Musk’s Tweet, the notion of Redditors waging war on Wall Street intensified. The word battle appeared infinitely more from this point on. This reflected the financial battle to keep stock price up and the political battle of taking down the rich. Grammatically, Redditors were more likely to use third person pronouns to create two sides of the narrative: them and us.
Hold the line and don’t panic
Whereas beforehand Redditors were taking a gamble on GME stock, after 26th January the WSB community urged people to hold their stocks to prolong the short squeeze. Despite fluctuating stock price and negative press coverage, Redditors diffused worry and panic.
Conspiracies of illegal activity
As stock price of GME rose to obscene figures, investment platform Robinhood prevented people buying shares. However, this led Redditors to make serious accusations of illegal activity and market manipulation. Robinhood was at the heart of many comments, and the company now faces a lawsuit in the US.
GameStop has sparked a revolution in trading and as Marketwatch suggests, has rattled the foundations on which hedge funds are built. While financial institutions characteristically look at quantitative data, it looks like a systematic approach to qualitative analysis will be crucial going forward. Relative Insight’s comparative approach cuts through the noise, revealing interesting insights on market trends, competitors and sentiment, enabling hedge funds to monitor conversation quickly and at scale.