Depending on which side of the Redditors vs Wall Street battle you've been on in the last few weeks, it's been either a brilliant or a brutal journey. For the rest of us, it's been fascinating watching the story unfold. Here's what we, as leaders, can learn from this David and Goliath story.
Wall Street Doesn't Play Nice
As the pandemic raged through the US in 2020, GameStop - an old-school video game store - looked to be drifting towards a bleak future; it's stock price dwindling and sales in its brick and mortar stores badly affected by the pandemic.
Many traders on Wall Street were acutely aware of this set of depressing facts, resulting in more than one hedge fund taking out significant short positions on the stock - openly banking on the company's future failure. In doing so, the hedge funds stood to make a boatload of money while GameStop ("GME") struggled and stood the genuine possibility of bankruptcy.
Redditors Enter the Game
As we know by now, this particular play didn't sit well with a bunch of folks on the online community site Reddit. These self-professed online "degenerates" decided to fight back against the Wall Street elite and, in doing so, lit the touchpaper for one of the most embarrassing episodes in the history of America's financial centre.
Following this (comparatively) small online community's actions, GME's stock price dramatically spiked as Redditors called on average-joe investors ("retail traders") to put as much money into the company as they could.
On January 27th, 2021, GME's stock hit an all-time high price of $347. A year previous, it had been just $4.28.
While this upward spike created some overnight millionaires among the GME stockholders, it left managers of the short-selling hedge funds staring at billions of dollars' losses. The very fact that the funds would eventually be forced to sell their short positions at high prices, potentially putting themselves out of business in the process, was both ironic and a modern-day David v Goliath story.
Changing the Leadership Game
There's no doubt that Lecturers and Investors across the globe will discuss the events of the last four weeks for years to come. But the GME saga has also taught us all some valuable lessons about leadership in the modern world. Here's my take on what we've learned about leadership from the Wall Street vs Redditors.
Lesson #1: Bullies: You Will be Outed
Although legal, the process of short-selling is - let's generously say - a tad uncomfortable for CEO's, Employees and Investors on the receiving end. Aside from a hedge fund betting that your stock will fall (the lower, the better), the process can also include those same funds actively working to make sure your stock falls - David Thornton of Money Mag Australia explains how:
Short sellers don't just wait and hope for their shorted stock to fall. They typically release research papers that claim the stock is doomed to encourage other investors to sell it and thereby precipitate a fall in price.
To put it another way: if a group of people got together to bet on how well you'd perform at work or in a relationship, you'd hardly be working under optimal conditions. And if you lost that job or your relationship did fail, imagine people profiting from that. Legal, yes, but not a particularly nice practice.
However, the internet is giving people a platform to identify and stand up to gaslighting bullies; with real and lasting effects. With inspired groups like the Reddit community, plus more openly business-related actions like rating companies on Glassdoor or providing recommendations for people on LinkedIn, institutional and individual bullies can and will be outed.
Lesson #2: Remote Communities > Face-to-Face Communities
Conventional wisdom, pre-Covid, had us believe that personal, in-person interactions were usually necessary to forge relationships strong enough to make people part with their money. Sure, online communities are not new, but rarely have they created chaos at such scale without anyone venturing outside to meet up in person during at least some part in the process.
By taking on established Wall Street investors, a group of online forum regulars started one of the most embarrassing wall street events in history. And they did it by using a simple, but hugely influential formula. It goes something like this:
Remote Community +
Shared Goals +
Cheering Each Other On =
What doesn't this formula need?
People sharing an office, school, stadium, community centre, or any other physical location.
Messages spread in online communities go farther, faster and can be shared easily. There's no need for clunky in-person meeting invites, minute-taking, or just waiting for everyone to show up.
Employ the right people - those who others want to follow - and every business, club, or organisation has the potential to make massive changes in the world without the need for in-person interactions.
Lesson #3: Leaders Don't Need Impressive Titles or Credentials
A guy with the online handle "DeepF***ingValue" (or Keith Gill as he is known to his family) is unlikely to have been shortlisted for a top investment position had he casually dropped that name into a job application before this year. But, since GME stocks blew up, he's found himself being interviewed by the Wall Street Journal and is a hero to millions. Why? Because he advocated fighting the hedge funds' short-selling tactics and bought 50,000 shares of the stock, posting his journey on the wallstreetbets Reddit forum.
Is this day-trading genius an Ivy-League graduate? Or a former trader at a major bank?
No, he went to a good, but not a top-tier university, and his last-known job was in marketing for an insurance company. Gill has a good education and had a solid job, sure, but didn't previously possess the kind of resume that would give hedge fund managers nightmares.
People like Keith Gill are challenging the established order of background, privilege, and connections being the key to creating enormous personal wealth. Gill has shown that, by being open and honest about a journey that others resonate with, people will hitch their wagons to you or your campaign; with the potential to create shockwaves through an entire industry.
Lesson #4: Communication is EVERYTHING
A fundamental issue with the GME story is that the hedge fund managers underestimated the little guy. One short-seller called the Redditors an "angry mob"; which is to say he may have underestimated them somewhat... Unsurprisingly, those words came back to haunt him as the stock continued to rise, unabated, as more and more retail investors got in on the act.
Could that short-seller and his team have perhaps tried reading what the Redditors were saying, prior to the stock price climbing through the roof? Should they have collaborated somehow and created a win-win for both sides? If nothing else they could have taken a smaller short position or quietly gone fishing for another stock to destroy.
Communication isn't a new skill - etchings on cave walls tell us it's been around since the dawn of humanity - but if you want to make sound leadership decisions, you need to know what those who might be affected by your decisions are saying. More specifically, you need to know where to look for those messages. In a world where more and more discussion platforms exist, communication with the right people has never been more vital to modern-day leaders.
Take heed, modern-day leaders.
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Rob Barratt is an entrepreneur and lifelong student of leadership. Based in Barcelona and qualified as a Chartered Surveyor, Rob spent almost 20 years working on construction projects around the world before starting and selling a successful restaurant business in Hong Kong. His latest startup, Quantitiv, connects construction projects in the western hemisphere to brilliant remote professionals in Asia.
When not working on his business, Rob can be found reading or listening to anything related to business, leadership, and self-improvement and spending time around people he loves the most.