Winning the Game by Stopping It
WallStreetBets, GME, and the Creative Art of Asymmetric Warfare
In the space of a week, a few hundred thousand self-proclaimed autists and investment know-nothings would come to dominate the news headlines. IPO-hopeful and up-and-coming retail investment broker Robinhood would be teetering on the brink of disaster. And Wall Street hedge funds like Citron and Citadel would be leaning on the media and every other connection they had to bring down the price of a struggling chain of video game outlets and the madness. Meanwhile, many of the children of those who had lost everything due to Wall Street’s irresponsible overleveraging in 2008 finally got their justice.
The people of subreddit r/WallStreetBets, and the retail investors who followed in their wake, have unwittingly pulled off an age-old stratagem, one outlined in the classic work on military strategy, The 36 Stratagems.
Zhuge Liang Say…
上屋抽梯, or “When the enemy climbs to the roof, take his ladder”, which means to lure your opponent into overextending themselves and then cutting off their lines of support and forcing them to fight both nature and their enemies.
This is how a weaker force can defeat a stronger one. It’s how the Russians beat both Napoleon and Hitler, by luring them deep into the Russian winter and then cutting off their means of supply lines and communications. It’s how the Parthians crushed Crassus’ legions, by leading them out to the middle of the desert, far from Rome’s walls. And it’s how a handful of internet nobodies struck fear into the hearts of the short-selling hedge fund billionaires.
Main Street Picks Its Battle
Thinking they were invulnerable and buoyed by the accelerated business closures brought on by the pandemic, Citron and Citadel bet big that Game Stop stock would tank in the coming months. They sold shorts, essentially IOUs guaranteeing they would produce the stock or its future value at a future date for cash upfront. Problem was, they sold more shorts than there were stocks on the market, thinking that by the time the shorts were due, Gamestop would be so worthless that those foolish enough to buy would rather just take the pittance they were worth in cash.
Not only did it seem like a safe bet, but big firms have several advantages, some legal, some shady. They could, for example, make big buys or sells of a company to give the illusion of a boom or panic and push others to follow suit. Or they might get one of their experts to forecast the rally or demise of the industry they have shorts in to drive it down.
Guerilla Cyber Warfare
What they did not anticipate was the rise of retail investors, for whom large-scale disruptions of the market could be achieved with mere taps of their phones. Months ago, Reddit user u/DeepFuckingValue noticed that the pros were predicting that Game Stop’s value would drop as low as $4. Sensing an opportunity, he made a big buy, and those who watched his stream did the same. And because they did it with an enormous sense of fun, millions joined them.
Unlike Wall Street financiers, who deride each other for wearing the wrong brand of thousand dollar suits to the office, DFV hosts his live streams wearing cat sweaters and sweatbands. Thousands of memes sprung up surrounding the stock. URLs like “Welikethestock.com” were purchased and redirected to Game Stop’s homepage. Later, when the price started to rise, Redditors used their winnings to buy funny billboards and even sky-written messages. One Redditor even bought Nintendo Switches from Game Stop and donated them to a children’s hospital.
Suddenly, the hedge funds were in a bind. Rather than tanking, Game Stop prices were rising. On the hook for what could potentially be an infinite amount of money given Game Stop’s meteoric rise in valuation, they needed to buy the stock back to mitigate losses. The problem is, there were never enough stocks in the first place. Worse still, those who held the stocks realized they were holding the hedge fund’s ladder and they weren’t about to let go.
Here, finally, is a way to hit the 1% where it hurts. In a way that no amount of angry letters, peaceful marches, or violent rioting in the streets ever could, the 99% finally grabbed their attention.
How WallStreetBets Succeeded When Occupy Wall Street Failed
The following isn’t a new lesson, but now is a good time to revisit it. Saul Alinsky, the 20th-Century Civil Rights activist author of Rules for Radicals, wrote that to win against a bigger, more powerful organization, activists have to threaten something they care about.
In Saul’s case, many of the black leaders who helped Lyndon Johnson get elected president found that the Democrats began dragging their feet on civil rights reforms now that they had the votes.
They could have organized another protest march, but they couldn’t have matched the numbers they once did when MLK was still alive. Besides, the media had already covered enough protest stories that the public was losing interest and LBJ had other things to worry about.
Instead, they threatened to occupy all the bathroom stalls at O’Hare International Airport during an important Democratic convention. Faced with the prospect of dealing with countless influential businessmen and politicians unable to relieve themselves after hours-long-flights, LBJ’s administration agreed to come back to the table.
Punch Above Your Weight By Punching Where It Hurts
As much as drum circles, bullhorns, and black-clad protesters might have bothered the peons who marched from Wall St station to work during those months in 2008, the bankers who collected the big bonuses and rode private cars to work barely noticed. But when an orchestrated maneuver threatens their bottom line, then suddenly the short-sellers’ doom and gloomers are on TV calling Redditors white supremacists and market manipulators. The irony, while lost on the paid pundits, has not escaped the meme-makers.
If the last week has taught us anything, it’s that the future is inherently unpredictable. The system can still fight back with overwhelming resources and tactics. Strange behaviors are already taking place with users claiming their shares have been mysteriously sold without their consent. Those responsible are likely gathering in conference rooms this weekend to devise a way out of the billions-of-dollars-hole they’ve dug for themselves.
WSWSBD (What Should WallStreetBets Do?
The Redditors are now a target, so they need to work on redundancies. Find other means of organizing that aren’t owned by 1% conglomerates like Conde Nast. Build email networks and analog means of staying in touch. And they need to start picking new opportunities. Methods that would both enrich those who get on board while punishing institutional investors who earn through unscrupulous means. Above all else, they cannot lose their sense of humor and fun. The memes are a common language that keeps the culture together, it’s something no mainstream outlet’s lawyers will let them match, and its humor helps the group deal with unexpected hardships like price drops and trading apps restricting further buys.
Great Strategems Never Die
Whether you want to effect change or simply make the enemy feel your pain, you have to hit them when and where they are at their most vulnerable. Picket signs and sit-ins are tools of the 20th and 19th centuries, they may still have their place but they lack the speed and effectiveness that smart devices do. So use them. While what’s happened in the last week is undeniably historic, it’s hard to say how many will hang around in the Game Stop aftermath. But this much can be said for sure: the principles of asymmetric warfare will always work even when the old tactics no longer do.
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