A few days ago, Dumb Money, a 2023 movie based on the GameStop short squeeze of 2021, was released on Netflix after its successful theatrical run in September last year. The movie, which received good reviews from critics and audiences, is currently making waves on Netflix, mainly because of the topic it deals with and how it relates to the internet and online communities.
The major characters of the movie are ordinary people from modest backgrounds and economic situations, who are pitted against large multinational corporations and asset management firms that profit billions from trading stocks. This creates a David vs. Goliath story that appeals to many viewers.
Since Dumb Money is based on a technical matter of shorting and short squeezing stocks in the stock market and its impact on various businesses and individuals, it is important to review some facts about the topic and the movie. Let’s dive into it.
What is a short squeeze?
A short squeeze occurs when the price of a stock that is heavily sold short (betting that it will go down) suddenly rises, forcing the short sellers to buy back the shares to cover their losses. This creates a positive feedback loop, as the buying pressure pushes the price even higher, causing more short sellers to panic and close their positions.
What happened to GameStop stocks?
GameStop is a Texas-based video game retailer that was struggling to survive in the era of online gaming and digital downloads. It is the world’s largest video game retailer and has more than 35000 employees working with it, both full-time and part-time. Many hedge funds and institutional investors had been short-selling GameStop stocks, expecting it to go bankrupt or become irrelevant.
However, in late 2020, a group of retail investors on the Reddit forum r/WallStreetBets noticed that GameStop had a very high short interest, meaning that more shares were sold short than were available in the market. They decided to buy the stock and hold it, creating a supply shortage and driving up the demand. They also used options contracts to amplify their bets, creating even more buying pressure.
The result was a massive short squeeze that sent GameStop’s stock price rising from around $17 per share in early January 2021 to a peak of over $500 per share on January 28, 2021. This caused huge losses for the hedge funds that were shorting the stock, especially Melvin Capital, which reportedly lost 53% of its value in January.
The retail investors, on the other hand, made huge profits, some becoming millionaires overnight. They also saw themselves as fighting against the Wall Street establishment, which they perceived as corrupt and unfair.
Aftermath of GameStop short squeeze
The GameStop short squeeze attracted worldwide attention and sparked a debate about the role of social media, online trading platforms, and market regulation in the modern financial system. Some praised the retail investors for exposing the flaws and vulnerabilities of the Wall Street elite, while others criticized them for engaging in reckless speculation and market manipulation.
The short squeeze also had several consequences for the parties involved. The hedge funds that were shorting GameStop had to raise more capital or close their positions, some at a steep loss. The retail investors who bought GameStop had to decide whether to sell or hold their shares, as the price fluctuated wildly and eventually declined.
During the peak of the frenzy, online brokerages such as Robinhood; faced backlash and lawsuits for restricting the buying of GameStop and other stocks, citing liquidity and regulatory issues. The regulators and lawmakers also decide to step into the matter, launching investigations and hearings into the events and the practices of the market participants.
Some facts about the Dumb Money movie
Dumb Money is a hilarious and thrilling movie based on a true story that shook the world of finance in 2021. The movie follows the lives of different people who were involved in the GameStop saga, such as Keith Gill, the online influencer who sparked the rebellion; Kevin Gill, his doubtful brother who tries to stop him; Jenny, a hardworking nurse who gambles her savings; Marcos, a GameStop worker who sees the madness firsthand; and Gabe Plotkin, the hedge fund manager who loses everything.
The movie features a star-studded cast, including Paul Dano, Pete Davidson, Seth Rogen, America Ferrera, Nick Offerman, and Shailene Woodley. It is directed by Craig Gillespie and written by Lauren Schuker Blum and Rebecca Angelo, who adapted the book The Antisocial Network by Ben Mezrich.
Dumb Money was a hit with both audiences and critics when it was released by Sony Pictures Releasing in the US in September 2023. It earned $20 million at the box office and won the Golden Globe Award for Best Motion Picture – Musical or Comedy. It was also nominated for the Academy Award for Best Adapted Screenplay.
