These 2 Tweets Show Exactly Why Elon Musk Helped Create the GameStop Stock Craze

A one-word tweet by Elon Musk helped send shares of troubled video game retailer GameStop to the stratospheric high of $469.42 per share, compared to less than $20 three weeks earlier. Musk’s tweet contained a link to the Reddit group r/wallstreetbets, whose members have come together to buy the stock and drive its price up. Musk’s motivation? In large part, it’s revenge against the short sellers who once targeted Tesla. There’s also his legendary love of video games. But whatever his intent, the fact is, Musk is using his outsized influence to help empower individual investors against Wall Street’s notoriously heartless hedge funds, and attempting to create a more level playing field. And he’s helping wallstreetbets do what many entrepreneurs think everyone should do: Use money as a change agent to make the world better.

As you may know from the news, wallstreetbets is out to punish short sellers — investors who place massive bets that a company’s stock price will go down by borrowing the stock, selling it at today’s price, and planning to pay back the loan with stock bought at a lower price in the future. Short sellers profit off struggling companies as they go down, but they can lose huge amounts if a stock they’ve bet against goes up instead. Driving up GameStop’s price is sure to hurt the short sellers — they’ve shorted GameStop so much that they’ve actually “borrowed” more shares of the company than exist. (This is technically illegal, but there are loopholes.) Wallstreetbets’ driving the price up has already cost short seller hedge funds $5 billion in total.

Wallstreetbets buyers are also hoping that Chewy founder Ryan Cohen, who’s bought up a sizable chunk of GameStop and has joined its board, will be able to turn the company around, thus making it a good investment again. (There’s an excellent explanation of both short selling and the wallstreetbets strategy here.) 

That strategy was already working pretty well, but it got a huge boost on Tuesday, when Elon Musk tweeted one word — “Gamestonk!” — with a link to wallstreetbets. The price shot up, eventually to more than $469 on Thursday. It tumbled back down to less than $200, and is trading around $325 as I write this.

Why did Musk decide to join the fray? For years, he’s been wanting to settle the score with the short sellers who not only bet against Tesla much the way they’re now betting against GameStop, but also, Musk claimed, helped encourage public perceptions that the the company was badly run. (If true, that’s a practice called “short and distort” which is illegal.)

Musk got quite a bit of revenge already simply by building Tesla into a profitable company. The short sellers who bet against it lost a total of about $38 billion and, as the share price continued to climb, Musk became the world’s richest person. But his tweets during the GameStop craze make it clear that he’s not done hating short sellers.

And later, with Wall Street, regulators, and apparently even the new Biden administration fretting over the GameStop phenomenon, and stock platform Robinhood taking heat from many observers, including Musk, for its decision to temporarily halt trading in GameStop, Musk doubled down.

But if Musk is motivated by less-than-noble feelings, he’s also right that short selling in general benefits no one but the short sellers and the wealthy who invest in their funds. Defenders of the practice argue that it helps hasten the death of companies that don’t deserve to live, benefiting the markets much the way a predator might strengthen a herd of antelope by killing off its weakest members. But a lot of heartache and financial hardship results from the death of a publicly traded company and, as happened to Tesla, sometimes short sellers make life unnecessarily tough for a company that’s perfectly viable.

Small individual investors are traditionally called “dumb money” on Wall Street, so it’s satisfying to many to watch these not-so-dumb small investors make huge returns while squeezing the short sellers. Or, as wallstreetbets member GeneEnvironmental925 put it, “Eventually someone is left holding the shares purchased at the highest possible price, but in this once-in-a-lifetime case, it probably won’t be someone with a net worth under $100 million.” Inevitably some small investors will lose when GameStop returns to a more reasonable price, but they’ll have taken the short sellers down with them.