Just three weeks after an Aug. 19, 2019, press release from Burry’s Scion urging GameStop to buy back $238 million in shares and a Seeking Alpha post warning about the dangers of shorting GameStop, the forum’s future hero showed the goods.
While the battle was far from won, DeepF——gValue, who goes by Roaring Kitty on YouTube, became the first to show that there was money to be had in those empty aisles flanked by video game discs Wall Street analysts said no one needed to buy.
But the forum was still not adopting the position en masse.
A value proposition was one thing, but there was no guarantee of success. The shares rallied from August 2019 through October, then went sideways until the end of the year before following the market down as the Covid-19 pandemic spread.
Another online watershed occurred when user “Senior_Hedgehog” alerted the YOLOing masses to the “biggest short squeeze of your entire life.” It was April 13, 2020, and, according to the elder Hedgehog, 84% of the retailer’s shares were held short. The final all-caps sentence imploring GameStop owners to call their brokers and tell them to not lend them short opened a new theater to wage war against short-sellers.
It’s a little known fact, and one that you wouldn’t expect to learn on a Reddit message board, that a stockholder can request that shares they own outright not be lent out to short-sellers.
“To be clear, your brokerage firm cannot lend out your stocks without your permission,” according to a blog post from the Sonn Law Group on the topic. “However, you may have signed a customer agreement that explicitly allows your broker to lend out your securities. This clause is often tucked deep within the customer agreement, and few investors pay much attention to it.”
It was at that point that the value trade thesis and the idea of forming an unofficial cooperative to swarm the stock coalesced into what would eventually push the shares to the promised land: a chance to inflict pain against Wall Street. For a change.
Striking the first blow didn’t take long. Shares rallied 22% on the day of Senior_Hedgehog’s short squeeze post. The next day they soared by another 26%, the biggest gain in at least 18 years at that time, while volume was more than five times the 20-day average at one point during the day.
Doubters were still outspoken and the shares stabilized over the following months even as more posters made an appeal to the stock’s intrinsic value and GameStop’s importance to the gaming industry.
A New Hope
Then another break, maybe the biggest of them all. Ryan Cohen, co-founder of Chewy Inc., disclosed a 5.8 million-share stake in GameStop through his RC Ventures on Aug. 31 sending GameStop shares surging 24% on the day.
Cohen’s announcement was the tipping point. A visionary and a classic disruptor, Cohen’s Chewy was everything GameStop wasn’t: an internet juggernaut, nimble, and, perhaps most importantly, it had already served up plates full of tendies with a triple-digit year-to-date return at the time of Cohen’s holding going public.
GameStop and Ryan Cohen declined to comment.
The thought of going large on GameStop had made the shift from radical to sensible. There were still detractors, but with Cohen’s backing war was about to be waged against the establishment.