(by Claudio Nassisi, Chartered Accountant and Phd in Economics and partner Aidr) It is normally thought that mostly personal content is shared on social networks. Users make public their daily experiences, singular facts that may strike the interest of the average reader or they can dispense advice on everyday living.
There are, however, some platforms that have dedicated channels in which the topics covered have a much more technical profile and which are increasingly accessible not only to "professionals in the sector" but also to those who are curious about specific subjects.
In fact, the idea that social media can really influence the economy and share values of companies affected by flash news released by more or less qualified individuals is now well established.
Elon Musk, known for founding Tesla in 2003, in his criticism of Cambridge Analytica's use of personal data (concerning the improper acquisition of personal data of about 50 million users), promoted the hashtag #deletefacebook by removing the profiles of their companies from the social network. The hashtag caused, along with the scandal over the misuse of personal data by Facebook, a collapse of the stock in 2018 by up to 24% and has cast doubt on its business profile.
Tesla's founder had evidence of the power of social media in another case (again on his own initiative which this time backfired against his own companies). Also in 2018, on the occasion of April 1, he declared Tesla bankruptcy on his Twitter profile. It was obviously a piece of news created ad hoc for the occasion which, however, had entered an already black period for the company (due to some accidents that occurred to the passengers of their self-driving cars). In essence, the stock, on that occasion, lost about 7% of its value.
The events described have to do with the influence exerted by the statements that are published, in the aforementioned cases, by people with a strong reputation and top positions. Social media, however, are capable of aggregating the individual behaviors of users making them a mass capable of literally shaking the financial market.
This is what happened last January with the performance of the GameStop title and the coordinated action of users registered on the social network Reddit and, in particular, those who organized themselves through its channel dedicated to finance. This social network was born in 2005 with the idea of creating an area for comparison between users who register and who can share documentary content of various kinds (photos, text or videos for example). There are thematic channels, the subreddits, which act as virtual squares to address specific issues.
In one of these, r / wallstreetbets to be precise, it was repeatedly proposed as a good opportunity to earn the purchase of shares in a company that certainly did not shine for its profits: GameStop. The company in question has as its business the sale of its video game stores (something very similar to what practiced with the films by Blockbuster, active from 1985 to 2013). This type of business is now in crisis with the paid diffusion of online content to the detriment of the purchase of physical media at specialized stores. At the beginning of 2020, the GameStop title was worth $ 3-4. The very low price of this security has attracted the attention of short sellers, or financial operators who earn when the value of a security decreases, through so-called short selling.
On the aforementioned Reddit channel, starting from December 2020, users began to implement a maneuver exactly opposite to that implemented by financial operators. They have in fact bought massively the shares of Gamestop. Thus was created what in the jargon is called "short squeeze": the short sellers are - in fact - squeezed, with the reversal of the bearish bet. On Tuesday, January 26, 2021, GameStop shares recorded a huge volume of transactions equal to 20 billion so that since the beginning of the year the stock has literally jumped from a value of $ 18 per share to $ 350.
The phenomenon of revolt against investment funds, it is expected, could involve other sectors such as telephony (BlackBerry and Nokia) or entertainment (the American cinema chain AMC).
This trend, literally unsettling according to ordinary predictive models, caused on the one hand significant profits for those who came into possession of the Gamestop shares at the price in effect before the stock surge, on the other it caused losses of billions of dollars for many American funds.
All this was also made possible by the availability of online trading tools with almost zero costs. Think for example of the Robinhood application which, to date, has not yet been made available in Europe.
In essence, there is an interesting and delicate starting point for reflection on the ability of individual investors to control and influence economic trends with often unpredictable collective maneuvers and to understand who really benefits from this new mechanism that increasingly unites the web with finance.