Book Review: The Antisocial Network
Even prior to my 28 years working in the investment industry, I loved stories about business and the markets.
When I was in college my Dad handed me a copy of Liar’s Poker: Rising Through the Wreckage on Wall Street. The author was Michael Lewis, later to become famous for a catalogue of great books including The Blindside and Moneyball, which led to acclaimed movies.
In Liar’s Poker Lewis provided an inside view from his days as a bond salesman during the wild late 80’s on Wall Street. I was hooked on business stories from then on.
I like to count reading such books as research for my job, which in part involves preparing our clients for, and guiding them through, the market disasters that show up every so often. But the truth is I’m just fascinated by the stories.
Truth is stranger than fiction as they say, and many stories about businesses and the markets will put any soap opera to shame.
Recently I encountered a fantastic example of this genre: The Antisocial Network: the GameStop Short Squeeze and the Ragtag Group of Amateur Traders That Brought Wall Street to its Knees.
It might be the longest subtitle ever, but it’s a great read.
In early 2020 the stock of an ostensibly broken chain of stores trying to sell disks in a world of downloads, GameStop, began to shoot higher. It flew from the four-dollar range to a high of $483, making millionaires of regular Joes and dealing a massive blow to at least one hedge fund billionaire.
The cast of characters explored by author Ben Mezrich includes a psych ward nurse, a student, and a hair salon worker… each of whom made fortunes of varying sizes on the stock.
The central player of the story is Keith Gill, a red bandana-festooned cat enthusiast who turns his $50,000 in investment in Gamestop into a fortune estimated to be near $50 million at its peak.
Long before Gamestop became a “thing”, Gill – a back office worker at a finance firm - began buying the stock and advocating for the business in an online forum and with YouTube videos. He believed the company had a bright future if it could successfully execute its online strategy.
We also view the story from the perspective of hedge funds, clearing houses, and trading firm titans who in some cases found themselves locked in an epic battle with a horde of smalltime investors whose combined buying power made them a formidable force in the market.
Melvin Capital is one hedge fund that found itself “squeezed” by the skyrocketing price of GME (Gamestock’s stock symbol).
The fund’s well-known founder Gabe Plotkin had come to the reasonable conclusion that GME was overvalued, as the company’s business model was under pressure from the growing prevalence of downloaded video games. So he bet against the company by going short (selling borrowed stock in the hopes of later buying it back cheaper).
But in the wake of chatter on a Reddit forum called “WallStreetBets”, individual investors started piling into the stock, forcing it into a parabolic rise that cost short sellers billions of dollars in what was couched as a triumph of little guys over the Wall Street billionaires.
Controversy was to follow as the forum “WallStreetBets” was temporarily shut down just as the online broker “Robinhood” – which caters to the kind of small investors who were driving the rise – stopped accepting purchase orders in GME.
These combined actions took some of the steam out of the rise in the stock, and provided some breathing room to shorts who were trying to cover their bad bets. There was a such a firestorm that eventually Congress convened hearings on the matter.
Author Mezrich makes the case that the trading halt was forced by outside regulatory actions, but many see the episode as an example of Wall Street fat cats taking care of their own to the detriment of small investors.
It’s up to the reader to form their own notions about the conspiracy theories surrounding the GME episode. What is certain is that a whole lot of money changed hands during the furious roller coaster ride that was Gamestop in 2020/2021.
The Antisocial Network provides an entertaining and enlightening look at the whole crazy tale, which to me serves as a reminder of just how wild and unpredictable the markets can me.