Film “Dumb Money” Depicts Rise and Fall of Meme Stocks
The new movie, “Dumb Money,” takes audiences through the dramatic rollercoaster ride of the 2021 meme stock saga. Inspired by real events, the film explores how online communities rallied together to invest in heavily shorted stocks, causing unprecedented volatility in the market.
At its peak, GameStop, one of the most prominent meme stocks, closed at an all-time high. However, on Thursday, it closed more than 78% below that high. Similarly, theater chain AMC plummeted more than 97% from its peak, leaving many retail traders with substantial losses.
The movie illustrates the different perspectives and decisions made by characters amidst the meme stock frenzy. Pete Davidson plays the brother of Keith Gill, also known as Roaring Kitty, encouraging him to sell while the stock is high. Anthony Ramos portrays Marcus, a GameStop cashier, who is advised by his parents to stay away from stock trading. America Ferrera’s character, Jenny, a nurse and single mom, faces skepticism from her coworker about taking financial advice from an unconventional source.
Rather than following the advice of selling, the characters in the film double down on their investments. They obsessively monitor their phones and news channels, hoping for the stock prices to keep climbing. The movie showcases the determination and belief in the meme stock movement, with Jenny stating, “Diamond hands… we’re going to hold the line.”
The pinnacle of the meme stock mania occurred on January 27, 2021, as GameStop reached its all-time closing high of $86.88 per share while AMC saw its highest trading volume. However, the excitement has since subsided, leaving those who invested during that period in significant debt. GameStop closed more than 78% below its peak, and AMC was down over 97%.
The meme stock phenomenon involved retail traders challenging hedge funds, leading to some victories for the retail traders. The massive spikes in stock prices were fueled by “short squeezes,” which forced short-sellers to cover their positions by buying back shares. This feedback loop pushed stock prices even higher.
Gabe Plotkin, a short-seller portrayed by Seth Rogen in the film, suffered heavy losses and ultimately shut down his hedge fund, Melvin Capital. Fraud allegations also surrounded the meme stock moment, with suspicion of “naked” or synthetic short trading. However, an SEC staff report on GameStop found no evidence of naked short selling.
Brokerage firms, such as Robinhood, faced accusations of impeding meme stock trades and limiting trading during the height of the frenzy. These firms struggled to manage risk due to the extreme market volatility. Robinhood itself went public in July 2021 but has experienced a decline of over 70% from its IPO price.
Regarding the companies involved, it remains uncertain whether the fundamental theories from Reddit traders were valid. GameStop’s turnaround efforts led by Chewy co-founder Ryan Cohen have not shown significant progress, and the company’s financial results have been underwhelming. AMC, on the other hand, embraced its meme stock status, offering rewards to shareholders such as free popcorn. The company also raised additional cash through stock sales, despite diluting individual shareholders’ holdings. However, AMC’s market capitalization is still down more than 50% from its peak.
The film also highlights the mixed results for Wall Street titans involved in short selling. While some short-sellers pulled back from this strategy after the meme stock squeezes, other trading firms likely profited from the volatile markets. Gabe Plotkin, despite heavy losses, was able to buy a controlling interest in the Charlotte Hornets NBA Franchise.
“Dumb Money” ends by revealing the net worth of the retail traders who sold their shares near the peak. Some characters earned over $100,000 on their trades. However, Jenny, portrayed as “StonkMom,” is depicted as still holding onto her stocks, with her net worth plunging below zero.
The film serves as a reminder of the unpredictability of the stock market, the power of online communities, and the risks associated with meme stock investments. It brings to life the real-life events that captivated the financial world and left lasting impacts on both retail traders and Wall Street.