Call it the modern-era David vs. Goliath battle - in online trading.
Shares of videogame retailer GameStop (GME) - Get Report have risen more than sevenfold so far in 2021 thanks to online retail investors betting against hedge funds and other institutional short-selling titans.
Indeed, the stock has quickly become a favorite of online traders who invest in companies championed on the Reddit forum WallStreetBets.
This, in turn, has led to a wave of investors ganging up on short-sellers like hedge fund Melvin Capital, forcing them to abandon their trades at steep losses.
Veteran Wall Street technology analyst Dan Ives with Wedbush Securities said the recent trading activity in GameStop, BlackBerry (BB) - Get Report, AMC Entertainment (AMC) - Get Report and others is something that market participants, particularly large institutional investors, need to get used to - and must consider when their making their bets.
“What you are looking at, in a broader perspective on stocks and on sectors, is the rise of the individual investor,” Ives told TheStreet.
“For many years this was an institutional game, and retail participation was something where there would be noise that you would listen to and you would always have your ear out for. But this is a central change.”
The reason: The evolution of trading and technology and the ability of hundreds of thousands of retail investors to review, analyze and comment in real time has enabled them to do what institutional investors have long done: confer on a thesis and collectively ride a wave, by buying or selling big chunks of a company's shares.
And it’s not going away. Just as exchange-traded funds have come to dominate some of the larger positions on Wall Street through sheer volume, so too are individual investors -- through the likes of Robinhood and other trading apps -- able to quickly and forcefully move in and out of positions and work as a collective tide to counter institutional investors' bets.
“It's a new market force, and ultimately ignoring is just to the detriment of those who do so,” said Ives.
“This is another element of the market that's going play a big role and allow these investors who are very intelligent about these stocks to do what they want to do.”
To be sure, Ives expects volatility to remain a key component of the David vs. Goliath kind of activity currently being seen with GameStop and others.
At the same time, he expects it’s a phenomenon that is here to stay – and something that larger and more established players need to factor in to their decisions about which positions to take.
“I do think it's important to understand the psychology and what's going on because it's something that's not a fad,” Ives said.
“I think it's going to be something that's going to play more and more of a role in the market and it is something that doesn't necessarily factor into the current thinking of market players right now.”