The Real Force Driving the GameStop Revolution

This movement is the culmination of nearly five decades of the democratization of markets set off by none other than the late founder of Vanguard Group, Jack Bogle.

For all the hyperventilating over this week’s financial revolution, though, investors should regard it as the latest phase in a long evolution—and unlikely to disrupt markets overall.

Still, this is a remarkable moment. It’s as if a bunch of couch potatoes watching a Los Angeles Lakers basketball game on TV belted down their beer and nachos, barged onto the court—and proceeded to block LeBron James’s shots and mercilessly dunk on Anthony Davis.

Amateur investors have always had advantages over professionals: They can invest for the long run and ignore the short term, since they can’t get fired for underperformance and don’t have clients who give them money (or take it away) at the worst time.

Now, however, amateur traders are asserting their advantages, too. They can communicate instantaneously, band together by the thousands—millions, perhaps—and buy or sell commission-free.

Thousands of members of WallStreetBets, a forum at the online community reddit.com, have been leading the swarm of amateur individual traders buying stocks that hedge funds and other institutional investors were betting against.

Moving in sync and en masse, such traders can drive a stock way up or down even if each trader commits only a few dollars. Professionals, on the other hand, are legally restricted from colluding and incur much higher brokerage costs.

These new mobs of amateur traders resemble swarms of animals that often coalesce in the wild. You may have seen videos of an immense school of fish flashing in unison through the sea or a murmuration of starlings forming a vast swirling vortex in the sky.

These swarms shift direction in swift, coordinated bursts to find prey and evade predators.

But it’s simplistic to think of this trading movement as a frontal assault on Wall Street’s elite by Joe Schmo and Jane Doe.

The caricature of this new breed of fast-moving trader is a 19-year-old living in mom’s basement. Locked down and bored by the pandemic, with fewer sporting events to bet on and stimulus checks (or “stimmies”) burning a hole in his pocket, he gets his kicks trading stocks. Often, he buys and sells options, which can produce even bigger, faster gains.

There’s some truth to that stereotype. The WallStreetBets culture can be rude and crude, seeking short-term thrills with no regard for risk. Yet some of its leaders are highly sophisticated, and not everyone piling into stocks this week belongs to WallStreetBets.

Sean Mattingly is a 35-year-old semiconductor engineer in the Portland, Ore., area. He favors a simple, diversified portfolio of low-cost index funds that he almost never trades.

On Jan. 25, Mr. Mattingly was on Bogleheads.org, one of his favorite websites, which advocates long-term investing. There, Mr. Mattingly stumbled on a reference to GameStop’s wild price moves.

Cautious as he is, Mr. Mattingly likes to reserve up to 5% of his portfolio for what he calls funny money. After visiting WallStreetBets, he thought, “Wow, this might be fun. I’ll take a chance and see what happens.”

He bought “less than 20”…