SXSW Documentary Review: ‘Diamond Hands: The Legend of r/WallStreetBets’

Wall Street makes people money in the dip or the incline. Hedge funds like Melvin Capital Management and Citadel LLC have driven the markets. These institutions made billions shorting faltering companies. In the documentary Diamond Hands: The Legend of r/WallStreetBets, filmmakers reveal that this trend may be a thing of the past.

In January 2021 fascinating events occurred with Wall Street hedge fund Goliaths. The Robinhood Company, with its encouragement of “investing for all” (no-commission trades), appeared to democratize Wall Street. That meant more money-making for the little guys.

The Beginning of a Trend With Reddit Channel r/WallStreetBets

When hundreds of Reddit investors bought #meme stocks, they skyrocketed, with like GameStop’s price increasing 1700%. On the other hand the fortunes of the shorting hedge fund “lords of the manor” plummeted. The entertaining documentary Diamond Hands: The Legend of r/WallStreetBets, which premiered at SXSW 2022, provides a window into the revolutionary #meme stock buying phenomenon that still impacts markets a year later.

Filmmakers Zackary Canepari and Drea Cooper cobble together interviews, video clips, animation and an effective music score. They clarify the complicated story around the Robinhood App and r/WallStreetBets. With humor they reveal how Redditors in a gleeful, high-risk power play shackled Melvin Capital and Citadel. In agony the companies scrambled to cover their positions, caught in a short squeeze.

The Davids ramped up a frenetic buying spree against the Goliaths. Using social media they made hilarious posts on Reddit channel r/WallStreetBets. Additionally, YouTube videos by Roaring Kitty (Keith Gill) fueled their buying. Ironically, statements by Citron’s Andrew Left, tweets by Elon Musk and others caused an avalanche against the hedge funds. The democracy of little people banded together and shared smart strategizing.

The Power of the Many Moves Markets

Incredibly, their camaraderie generated the notion that the power of the many, not the wealthy, moves markets. En masse, these “apes” raised the GME “stonk” (GameStock’s stock) to a high of over $460 a share. The smartest retail investors like Alan Chow made millions of dollars and cashed out of at the right time. Meanwhile the hedge funds that shorted the faltering GameStop to a possibly illegal low share price of 140% of the company value choked. The Reddit retailers hoisted the hedge funds on their own petard as the latter lost millions. A “loser” stench arose around Melvin Capital, Citadel, Andrew Left’s Citron and others in January 2021.

And then something interesting happened. All bets were off! First, Robinhood pulled the plug. Without warning the company restricted retail investors’ buying. Opaquely, they justified the restrictions by claiming issues with volatile stocks and regulatory requirements. Melvin Capital and other hedge funds’ investors were saved from further losses and bankruptcy. Meanwhile, Redditors and the little investors with their paper millions cried “foul.” Hypocritically, Robinhood had effectively shuttered “democratic” Wall Street on which, ironically, it had promoted its branding and mission.

Robinhood’s Retraction Shuttered Its Democratic Mission

The cries of corruption generated an unsatisfying investigation. Obfuscation and a lack of accountability by the moneyed players and institutions dominated. Interestingly, the only one feeling the heat was Roaring Kitty, AKA Keith Gill. After he testified before a Congressional committee, he vanished. Sadly, most Redditors lost their paper millions and their dreams, and the Goliaths breathed a sigh of relief, though suffering embarrassing losses.

This story is indeed legendary. Canepari and Cooper share it with vitality through the perspectives and recollections of retail investors. These include Alisha Woods, Matt Kelly, Sir Jackalot, Alan Chow, and Jeff “Amazon.” Also they interview investors like Mike Novogratz and Citron’s Andrew Left and others. The storytelling remains funny with specific, human details. As the filmmakers track the story of investors’ thrills, hopes and sleepless nights around their high-risk trades, the audience avidly follows.

r/WallStreetBets Became Its Own Myth

The documentarians reveal with acumen the myth and power of the hysterical culture of r/WallStreetBets. These Redditor mavens are steeped in the language of the subculture. Their unity, courage and weird ethics cryptically target dark pools, dark web trading and big investing houses. These smart, clever retailers use strategies to turn the tables on the Goliaths. Institutional greed skews the wealth of the markets using high speed trades that get the best prices by seconds. With humor the filmmakers show how the r/WallStreetBets culture puts the hedge funds on notice. Their attitude remains YOLO (you only live once), their youthful valor prone to high risk.

The witnesses in the film clarify what happened up to the point when Robinhood intervened and refused to allow any more buying of GameStop (GME). However, the filmmakers didn’t show us the intentions of the hedge fund CEOs. Also, they don’t posit what might have happened if Robinhood had allowed the buying to continue. For example, what if the retailers had cashed out at a price of $500 a share, pulling in millions? Indeed, a concerted wealth shift from the haves to the have nots might have occurred. Because of the intervention, Robinhood fortified Michael Lewis’ affirmation, stated in his nonfiction book FlashBoys, that “Wall Street” was rigged. Naturally, the hedge funds roundly criticized Lewis and called his book a fiction.

A Perfect Storm

Finally, Canepari and Cooper assert that this was a special situation. These gyrations on Wall Street occurred because of a “perfect storm of events.” The unlikely pandemic and the situation it spawned caused Redditors to leap at the thrilling momentum stimulated by r/Wallstreetbets’ memes. Some traders newly graduated or released from the military felt stymied at home with their stimulus checks. Many with no jobs and no money to buy houses or cars turned to the high-risk dares of Wall Street.

Meanwhile those who worked remotely at home also looked for another way to become rich. Probably sick of the earned income crumbs and unable to retire on enough money to enjoy their lives, they saw promise in Wall Street risk. Melding their intentions with the accessibility of social media, it was only a matter of time before they began gyrating the markets with their great numbers.

Finally, because the hedge fund CEOs refused interviews, there remains much we don’t know. The GME craze made shorting institutions watchful. Indeed, losing millions for their investors initiated a symbolic hedge fund accountability. Still, they lost temperance with reckless abandon, greedily shorting companies like GME 140%, in effect bankrupting them. Luckily, the retailers noted the opportunity with institutional short selling. (On the other hand the shorting of Lehman Brothers’ stock had no retailers preventing its bankruptcy. Indeed, Jaime Rogozinski created r/WallStreetBets four years after Lehman Brothers filed for bankruptcy.)

Should Wall Street Correct?

Thus far, Wall Street has not taken corrective action. The government has neither reinstated the full Glass-Steagall Act nor re-regulated the uptick rule. Thus, institutions can short faltering companies over 100% of the value of the company, like Melvin Capital did GME.

On a positive note, burned retail investors are teaching themselves how to do research. More are using their savvy on less risky trades. Ironically, hedge funds have gone on r/WallStreetBets to check the trends and forestall another short squeeze loss of millions. Sometimes, “Greed isn’t good!”

If you are at SXSW, check the film schedule for Diamond Hands: The Legend of r/WallStreetBets. Or watch this must-see film at 10 pm ET on 10 April on MSNBC.