Meme Investing

At this point Wall Street Bets, $GME, Marvin Capital may not be hot news. For the few who are out of loop, follow the this twitter thread that captures the wild ride of past week (Courtesy @ShaanVP)

Basically a hedge fund shorted a video game retailer. In 2019 a reddit user known as u/DeepFuckingValue uncovered some naked short positions by these funds and started taking the opposite side of the bet. Over next 18 months a subreddit r/WallStreetBets started to take notice and accumulating the hordes to a once in a lifetime YOLO trade to expose 140% short position in Gamestop. The hedge fund in question started feeling the short squeeze and was bailed out by couple of billionaires. WSB got support from couple of its own billionaires helping push their side of the narrative. It quickly spilled over to rest of stock market, with other heavily short stocks jumping wildly and the zero cost brokerage apps starting crashing for this kind buying pressure set off a real risk of liquidity crisis.

For us, It is more interesting to cover the amplification of phenomenon that created this situation. This essay is not about how to do your investment rather understand the forces that dominate it.

ENTER MEMES

If 20th century was dominated by an Value Investing thesis, 21st is laying up the groundwork of its mutant cousin “Meme Investing”. Fundamental of this investing style can be understood from Elon Musk’s tweet:

With internet, you have (theoretically) instant infinite distribution. For idea to catch on it has to be simple, understandable, correct, timely but most importantly entertaining. When everything under the sun is accessible, there is no time for boring.

The 2010’s saw the rise of meme subculture and emergence of “meme lords” : Elon musk, PewDiePie being the prominent few. Online networks thrive on creation and propagation of these memes. With individuals battling it out for their 15 minutes of internet fame by influencing a meme into existence. Large social media platforms (likes of Youtube, Facebook, Twitter, Instagram, Tiktok) get their power from these individuals who are incentivized to climb the status ladder of meme culture. Time and again, consumers migrate to the platform that offers the right mix of novelty with familiarity. Rise of Clubhouse reinforces this point.

It would be appropriate to say that Trump won his presidency on back of this domination in the meme space. His genius lay in the breeding persuasive memes (MAGA/Build the wall/Crooked Hillary) with mass hysteria and taking it on the internet. Any future candidate (provided they can navigate gatekeeper censorship) who knows how to surf the meme wave would absolutely destroy a regular career politician.

2020 – DIGITAL BECAME REAL

Amidst the year of the pandemic, when most systems were failed – technology and software came of age. These were the only tools that kept society, and in-turn the economy functioning. Almost overnight, digital went from becoming just a differentiator to savior of companies, communities and countries. Safe to say, without internet and software tooling there is no economy. We go to jobs, work, socialize, move, get loans, rent homes through internet. Internet is the townsquare and the mall. Was just a matter of time when internet was the stock market.

Internet will eventually eat everything. All it has to do is not get boring.

A PERFECT SWARM

When most of the modern economy goes through a browser or an app. Internet and software become an unstoppable force. Internet solves 3 major bottlenecks of industrial era: (i)Access to information, (ii)connecting people at scale and (iii)distribution of products. This becomes perfect storm for the emergent behavior: Swarming of systems. We can map a common playbook behind this – identify the opportunity, create the right meme, push it on the internet, assemble the tribe to sustain the meme, watch the revolution unfold. Arab Springs, Bitcoin Hodlers, Rise of Trump-Bernie, MeToo, TSLA v TSLAQ and r/WallStreetBets are the result of same underlying change in the system. With the right narrative and aligned incentives it is now possible in first time in history to fight and possibly uproot the system.

Core of the meme investing is constant trial and error, for every one that catches on, 1000s will fail, that doesn’t matter because experimenting on internet is cheap, small failures are good, the payoffs for the winners is convex. One has to share something of value in an entertaining way, let the vocal community push memes those hard enough – see the world around you change. Any individual meme may be puny and harmless. But a few will get momentum and they get big, far bigger than any designed system can manage. And in no time, you are toppling dictators and crashing hedge funds.

Internet is the bet that gives power to the large masses against few elites. Any other time in history, it was the elites who controlled the power and means to define narrative. Now the game has (relatively) levelled. In meme warfare Entertaining Compressed information distributed freely is the weapon that topples high seated oligarchs.

The recent censorship by the “Big Tech” is the first sign that current social order may be incompatible with a truly open internet. Monopolistic technology companies who gained their position due to internet revolution, now find themselves defending their place against the people who brought them there. The masses claim the game is rigged, elites are scrambling to maintain control. What is ongoing is a tug of war on a global scale with status and money on one side and pure numbers on the other. Ideas will be created, memes will be manifested, content will morph, find its audience, masses will assemble, gain momentum and use their aligned powers against the system that keeps them down. This will create movements, this will create stampedes.

How the battle is going to play out is fascinating to say the least.

“We conclude that the concentration of wealth is natural and inevitable, and is periodically alleviated by violent or peaceable partial redistribution. In this view all economic history is the slow heartbeat of the social organism, a vast systole and diastole of concentrating wealth and compulsive recirculation.”

– Will and Ariel Durant

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