Was the Reddit mania a win for “democratizing” investment? Or was it a demonstration that too much people power in financial markets stokes dangerous bubbles? As with all democracy, it will depend on the outcome for those less powerful.
On Friday, GameStop closed at around $64, 87% below its peak on Jan. 28. Other companies recently targeted by individual investors online, such as AMC and BlackBerry , also deflated. The Treasury Department concluded on Thursday that “the core [market] infrastructure was resilient.”
The real political fallout, though, may be to come. Officials are investigating financial misconduct, particularly by brokerage firms that restricted purchases of some stocks last week. Politicians on both sides of the aisle lamented that professional speculators were protected at the expense of small traders. Brokers said they only took action because of risk limits imposed by clearing firms.
An explicit goal of Reddit gamblers was to torpedo hedge funds’ short bets, which they see as fraudulent manipulation by a Wall Street cabal. Yet trades by the Reddit gang also ended up benefiting many asset managers, including hedge funds.
But focusing on whether amateur or professional investors won or lost more in the GameStop saga risks missing the point. Most asset managers make their money through fees, not superior investment returns.