We all know how Robinhood and its Merrimen (Reddit wallstreetbets) have taken over the market. The billion-dollar hedge funds are now scrambling and some are even going belly up as the organized chaos of viral collaborative platforms takeover. History continues to repeat itself …. from David vs. Goliath to Robinhood vs. the Sheriff of Nottingham to Reddit vs. Hedge funds. The underdogs are here to stay and more importantly disrupt the status quo.
Just to give you a quick understanding of what just transpired and why you should care, here is a quick tutorial on Short Selling 101. Short Selling is typically employed by Hedge funds when they are bearish (or expect the stock to go down). The way the short-selling bearish play works is by borrowing stock at a certain value (for this example say $100) and selling the stock in the open market. They still owe that borrowed stock back. Since they’re bearish, the Hedge Fund is hoping that the price will be below the value that they bought it at (for our example, it has to be below $100). If the stock goes below the price (say $80), they’ll buy it in the open market and return the stock to the people that they’ve borrowed it from. So they borrow, sell (collect $100) in the open market, buy (give $80) to buy the stock in the open market, return the stock to the borrowed entity.
So what went wrong? I’m sure you heard of GME, AMC … GME is the symbol for GameStop and AMC for AMC Movie Theatres. Both were heavily shorted. The short interest position to outstanding shares for GME was over 100%. Here is where organized chaos kicked in. There is a group in Reddit called wallstreetbets. This group had little over 1 million users at the beginning of the year. Now due to the short-selling mania, they’re around 6.5 million users. The price of stocks is fundamentally determined based on the supply and demand of the stock. If the supply is small, the stock value goes up. Vice versa, if the demand is high, the stock value goes up.
There was clearly demand for the stock as the hedge companies need to buy it at a lower price to return the borrowed stocks back. However, the supply was collectively bought by Reddit users. The Reddit users refused to sell, driving the price higher and higher. This is called a short squeeze. Until the hedge funds were forced to buy at much higher prices compared to the prices at which they sold the initially borrowed stocks. This solidarity of force has rocked the financial markets. Individual retail investors were often the last ones to come to the financial party and were typically the victims of the larger well-organized hedge funds.
Now, you’re thinking about why a person who’s passionate about sales and marketing is talking about Wall Street. I see that it’s time for similar disruption to take place in the marketing analyst business. We’ve our equivalent of hedge funds that are dominating this industry. Folks like Gartner, McKinsey, E&Y, etc.
I am sure many can share this experience. From my own personal experience, we once hired a big brand consulting company to tell us about our own business. After lots of interviews with the management team/key personnel and after spending about a million dollars, they basically got what they already knew in nice glitzy charts. And the recommendation that was made ended up in a real disaster when it was actually executed. But the larger consulting folks are more T&M (Time and Material) based so they never stick around for the outcome or let alone take accountability for them. And I don’t blame them, the outcomes sometimes take a year or so to find out if the recommendation was correct or not. As such we deal with large-scale consulting companies that are all about dump-and-run with very little accountability afterward.
Don’t get me wrong, the larger firms also bring merit. They bring the perception to the management team if they go with the bigger brand their jobs will be safe. Also, they do provide a good conduit of information about the competition … the only problem is what comes around goes around. Information also flows back to your competition through these kinds of firms.
So how do we disrupt this space? Similar to what the Redditors have done with the hedge funds. It starts with open-source research. Open-source research provides an environment for people to collaborate with bite-size research snippets. The environment also has highly curated articles already available from the web, surveys, and expert panels.
In addition to open research, a data curation platform that continues to moderate and validate hypothesis and research contributions. In addition to the curation, you complement with a specialized ecosystem of consultants that are true partners. They are on a journey with you. All the research is adapted and customized for you by these high-value add consultants. These consultants produce investment-grade and actionable research that directly feeds into your strategic plans and operational excellence.
But the key here is open research that is fed by the industry. But to make it truly disruptive, we need to create a tsunami of research contributors and an open area to collaborate on trends and bite-size research components.
Until next time…..