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As GameStop stock frenzy dies, it’s the small retail investors who will suffer most

  • Who’s to blame when the credulous masses, misled by pseudo advice on internet chat forums, believe they can instigate a pump-and-dump scheme and walk away unscathed? Regulators must bring in circuit breakers not just for meltdowns, but also for the upside melt-ups

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The Reddit logo is seen on a smartphone in front of a logo for WallStreetBets, a group it hosts. The price of GameStop shares shot up after the Reddit board, which has more than 2 million subscribers, hyped up the stock. Photo: Reuters
There is a deep satisfaction in seeing the masters of the universe find their feet of clay, which is why the overwhelming smell of Schadenfreude hung over the stock market last week. The wisdom of the crowd, whipped up by internet chat, ganged up on a few small stocks, pushing their prices to extraordinarily high levels.

It pitted the rookies en masse against Wall Street’s hedge fund short sellers. But the reasons for doing so were purely emotional, with investors fooling themselves that lipstick on the pig somehow changes things.

Narrative finance has been a powerful force in market-making ever since the swapping of rumours over coffee in London’s Change Alley began in the 1680s. However, we professional investors thought we’d outgrown rumours and hearsay in favour of sophisticated algorithmic valuation.

So we thought – but an excess of money and time is tempting even the most disciplined investor back into speculation and innuendo.

We should not be surprised that fake news and trolling have finally hit the financial markets. Like every social media movement, and financial scam, this one is driven by sharks preying on the mackerel.

Specialist Meric Greenbaum works at a post on the floor of the New York Stock Exchange. Fake news and trolling have finally hit the financial markets. Photo: New York Stock Exchange via AP
Specialist Meric Greenbaum works at a post on the floor of the New York Stock Exchange. Fake news and trolling have finally hit the financial markets. Photo: New York Stock Exchange via AP
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