A group of people who view themselves as marginalized by a powerful establishment connect via the Internet. Enabled by social media’s unparalleled ability to promote, collaborate and organize, they act collectively to rewrite the rules of power – and in doing so, manage to achieve things that were believed to be impossible.

Does that sound familiar? It should. It describes so many things that have happened during the internet age – from the Arab Spring to the nomination, and eventual election, of a controversial reality TV show host as President of the United States.

In the early days of 2021, it describes one more thing: a concerted effort by a legion of Davids to take down a Wall Street Goliath. And as of this writing, they look to be succeeding.

The big long

David, in this telling, is the users of a forum is called WallStreetBets, hosted on the discussion platform Reddit. WallStreetBets describes itself as “like 4chan found a Bloomberg terminal,” and the community is as advertised: although the subreddit’s focus is stock trading and retail investments, bits of actual insight are often buried beneath memes, false stories and arguments.

When the subreddit discovered that institutional investors, among them Citron Research and hedge fund Melvin Capital, had taken a short position in GameStop – a struggling retailer that had taken a further hit due to COVID-19 – opportunity knocked. The subreddit’s users discovered that if they acted collectively, they could increase the stock’s price, forcing the hedge fund in particular to take massive losses.


The unprecedented rally in GameStop stock – and the fact that it has put institutional investors like Melvin Capital at risk of insolvency – has put Wall Street on its back foot. The CEO of Nasdaq, as well as Massachusetts’ top securities regulator, recommended that trading of the shares be halted. TD Ameritrade has restricted trading in several stocks targeted by WallStreetBets – not just GameStop but also Blackberry, AMC and other heavily shorted businesses, while RobinHood, WallStreetBets’ preferred app, halted purchases of targeted stocks but not sales. The White House reported that it is monitoring the situation.

But the ultimate cause of Melvin Capital’s misfortune is not the existence of risky investments but the existence of the Internet, which – like in politics and in media – has enormously levelled the playing field between traditional centres of authority and power and regular people.

The rise of low- and no-cost trading platforms has made retail investment easier than ever. On social media, day traders will continue to gather, discuss and bounce around ideas. A Bloomberg terminal is no longer a prerequisite for Bay Street impact.

Fund managers, and public companies, need to be prepared.

A new risk environment

In this new environment, risk management requires intelligence – and that means going beyond analyst reports and technical analysis, towards understanding mass online conversations. WallStreetBets is one infamous online investing community, but it is not the only one. Day traders also converse on Twitter, on Facebook, and in private groups and forums – so-called “dark social.”

It also means looking past earnings reports and balance sheets, and understanding that reputational and financial risk are now closely interlinked. Online communities acting collectively are often acting against an institution they perceive as a villain. Though short selling is a legal investment strategy, it presents reputational risks, as internet-enabled groups of retail investors who do not approve of the strategy, or of the actors employing it, can act on that sentiment. Behaviour that may be perceived as predatory creates a risk of a backlash.

The nature of influence

The democratization of communications has meant the democratization of influence. Traditional institutions are now one voice among many. This means that corporate disclosure must be open, transparent, and accessible to all. It also means keeping an eye on the entirety of the conversation around financial markets: not just analysts and business pages but also Reddit users with high authority, top traders on apps like Robin Hood, and even actors like Canada’s own Chamath Palihapitiya, who can move stocks with a tweet.

It also means that the nature of investor relations may change. When retail investors, collectively, can move markets, direct-to-consumer (or in this case, direct-to-retail-investor) communications strategies will have to look beyond the traditional.

This does not mean selective disclosure to favoured influencers. It means less selective disclosure: speaking more often, with more people, and being more transparent and accessible than ever before. The practice of burying a report five clicks deep on an investor relations website must end, and truly universal disclosure – to everyone, institutional or retail, accredited or not – must become standard practice.

Financial institutions, institutional investors and public companies should now learn the lesson that political parties learned in 2016: that traditional centres of authority and power are vulnerable. New methods of communication, collaboration and organization create new opportunities, but also new sources of risk. They must adapt if they are to survive.