Thread by @RomeenSheth

0/ THREAD: The story of the week is Gamestop.

How it all went down has been very well covered, so let’s talk implications.

The TLDR is: The establishment just got punched in the mouth and a new investing dynamic is here to stay.

This isn’t a new chapter, this is a new BOOK.

1/ First some quick context if you’re not up to speed.

Gamestop - the iconic video game retailer has been struggling for years.

Why? All the same reasons why other brick and mortar retailers are struggling - long term leases, digitization laggards and no e-commerce capability

2/ The opportunity in e-commerce is what made one of the most gutsy entrepreneurs (@ryancohen , Founder of @Chewy) take an interest in the business.

For those who don't know - when Ryan sold Chewy, he took ALL his earnings ($1B+) and poured them into 2 stocks: $APPL and $WF.

3/ Ryan disclosed a position, took 3 board seats and made a statement about how much upside was in the business. He did this in early January when the price was ~$20 per share. Today it hit $340! A 17x return in 3 weeks….

4/ No the business didn’t become 17x stronger over the last 3 weeks. Two phenomena were at play to drive the price up - a short squeeze and a gamma squeeze.

@SahilBloom goes into the dynamics of this more deeply in his thread (well worth a read).

https://twitter.com/SahilBloom/status/1354436669823275010?s=20

5/ Today, Goliath blinked.

Both Citron Research and Melvin Capital exited their positions in $GME - a resounding signal for retail investors.

In totality, the “shorts” lost over $5B on Gamestop in the last 3 weeks.

6/ Hedge funds keep downgrading the stock and retail investors are basically saying “I. Don’t. Give. A. F**k.”

Is this just a crazy one off? Would seem so right?

Except this happened with $TSLA and today w/ $AMC, $BB (Blackberry) and $BBY (Bed Bath and Beyond)

7/ (Side note: it’s kind of poetic that retail investors are taking us back to the early 90s and reviving everything the world moved on from...movie theatres, video game retailers, old school mobile phones...)

8/ Being a retail investor is mostly being a sucker.

Want to buy into the Airbnb IPO? Cool, you can AFTER all the rich people have taken their cut at a much lower price (cue: IPO pop)

Want to invest in startups, hedge funds or PE? Sorry! You have to be rich to do so.

9/ But now the world is changing.Equity markets are undergoing massive disruption:

Crypto
Crypto Exchanges
@RobinhoodApp
Public.com
Rolling Funds
AngelList
New Accredited Investor Regs
Reg Improvements (CF, D, A)

10/ Think about how you invested 20 years ago:

It was $9.99 per trade, you had to call your broker and there was no such as thing as "fractional shares."

Today it's free, on demand, automated and fractional.

And that’s just the tip of the spear.

11/ ⬇️friction + ⬆️democratization = a powerful cocktail.

The public has been shouting from the rooftops for years on the system being set up against them.

Now they’re voting with their dollars.

And it’s coming at a time when trust in institutions is at an all time low.

12/ Naturally, the call from institutions over the past few days has been a plea to the regulators: "Who is monitoring the markets?!"

Ironic, because every morning @CNBC broadcasts these same institutions professing their latest pick: "BUY THIS STOCK, IT'S GOING TO THE MOON!”

13/ Irony aside, what are the regulators even going to do? The SEC/CFPB are built to go after big institutions or high end bad actors. It’s not built to go after millions of retail investors.

Play that out - are the regulators going to open a million cases to prosecute?

14/ Even if you figured out how to pull this off practically, how do you reconcile this philosophically?

Here’s the mission statement of the CFPB: “A consumer finance marketplace that works for American consumers, responsible providers and the economy as a whole.”

15/ If SEC/CFPB go after retail investors because they made a bunch of $ (doing the same thing institutions have been doing behind closed doors), the gig is up.

Actions speak louder than words - this proves the regulators are really protecting institutions, not individuals.

16/ Now different people have different theses - some say shorts are a really small portion of the market and don’t have a big effect. Others say these are signs of a bubble and there will be a massive market crash.

17/ Both can be true at the same time - this is happening today in specific stocks in specific segments. It has an impact on the individual stock, but not the market as a whole.

But if extrapolated, this will move markets. Is that a bad thing on its own?

18/ If we say yes, what are we really saying about retail investors?

Separate question that is equally interesting - what happens to individual companies? Tesla was REALLY struggling (on the verge of dying), but with that run up in share price, they just picked up a war chest.

19/ Does Gamestop actually thrive because of Ryan Cohen’s insight on the business? Or because people believe in Ryan Cohen?

What’s the cause and effect in the story?

If you're on the Board/the CEO what does this mean for you in managing the business?

20/ Yesterday @elonmusk said he loved @Etsy and Etsy picked up $1B+ in market cap.

Does Etsy go use that $1B to go do aggressive M&A, further entrench themselves and now actually win?

Can narratives turn into self-fulfilling prophecies?

21/ And importantly, is this really any different than what’s been happening all along, or is it now just a question of who is doing it and scale?

E.g. in venture if Sequoia or A16Z are leading a round and a bunch of folks “fast follow”, isn’t that basically the same thing?

22/ I tweeted earlier this year the '20s are going to be a renaissance decade - the themes I was most excited about were: (a) capital markets, (b) fractional ownership and (c) creators.

What we just witnessed was (A + B + C) * 1000.

This isn’t a new chapter. It’s a new book.