As someone who has designed board games and video games for years, I have spent a ton of time watching what's going on with the meme stock situation. And while thinking about what I was seeing, I was reminded of the game design concept of "Finite and Infinite Games."
It's worth viewing the current situation under this lens and I wanted to shine some light on how this game design concept factors into meme stocks, and what everyone (including myself) has missed until today.
All of this is my opinion. It is not a recommendation or financial advice or a call to action even if it looks like it. In the interest of full disclosuer, my positions are long GME and NOK in very small amounts. I got in super early on both so I have no plans to sell.
Finite and Infinite Games
For those that have never heard of this, it comes from a book with the same name and the main idea is simple:
Finite games have a clear end and the purpose of a player is to win. Football is a finite game. Monopoly is a finite game. Getting your stock to a certain target price and selling is a finite game.
Infinite games do not have a clear end, and the purpose of a player is to stay in the game longer than the opponent. The game can even outlast the players. Running a business is an infinite game. Exploration is an infinite game. The Cold War was an infinite game.
When finite-minded players enter a finite game, or when infinite-minded players enter an infinite game, the game functions properly. But things get wild when a player sits down at the wrong game.
The Vietnam War
I'm stealing this section from the beginning of Simon Sinek's incredible talk because it fits the point I'm trying to make.
The US got into the Vietnam War to win a war. If the enemy ended up flying a white flag, victory is achieved. They were playing to win the game (finite-mindset) and they won a lot of battles.
But the Vietnamese were fighting for their lives and their way of life. Their goal was to get the other player to drop out or simply outlast the opposition until they left (which the US eventually did). And the Vietnamese were willing to fight to the last man to do it.
The United States won a ton of battles but the Vietnamese won the war.
What type of game is the stock market?
We can answer this a lot of ways but my simplest explanation is this: the stock market is a strange beast because it's an infinite game (outlast your opponents) but almost everyone plays with a finite mindset. A player tries to ride their stock to a certain target price, and they cash out (win) and leave or play again (buy a new stock).
During the past few weeks, millions of players entered the meme stock game and used orders and limits to win so they could leave. Their opponents did the same.
Even when the rules are lopsided, the game functions as both sides (bulls and bears) try to cheerlead and do whatever they can to fight for their side, short or long.
It's no secret that last Thursday, the rules of the game drastically changed for players in meme stocks, as millions of players were suddenly knocked out, impacting the score for every other player. Demand is directly linked to price.
This collapsed the demand line for all players during one of the biggest, fastest bull runs in history. Viewed in terms of the game, a referee (Robinhood) essentially benched millions of players on one side of the game to the benefit of the opposing team. This is why there was a sudden and immediate outpouring of powerful people from all angles condemning the action, and Congress is calling a hearing. The referee broke the game (meme stocks fall because the demand is suppressed) and no timeout was called. This created an absolutely gigantic problem.
How finite-minded players adjusted
Players of the finite game that got disadvantaged now came to a crossroads. They could
The players that were benefited by the rules change also had a choice. And that choice looked different because of their advantage:
At the end of the day, all these players are looking to cash out at a number, so even though they are on different sides, and meme stocks are crazy right now, the game is still playable.
Here is the part where things go off the rails and no one is talking about it because no one has put the right words to it yet. A huge number of these finite-minded players have been turned into infinite-minded players.
Through all the noise of WallStreetBets and Facebook and Twitter, I have noticed some major changes in the way people are talking about their meme stock holdings since Thursday. I'm hearing things like
All of these are hilarious. But there is something deeper going on psychologically with these people, and it is clear to me that they have changed from a finite-mindset to an infinite mindset. You can find even deeper examples like
Let me break down what I'm seeing here.
When these players felt they got robbed, it instilled in them a righteous desire for justice.
I'm sure a bunch of them are familiar with The Big Short, or were connected to the 2008 housing market crisis, and they're all aware of how these things happen at the expense of the common man and no one gets punished. They found such a dominant strategy that the referee had to change the rules while they were winning big.
In their minds, the only path forward now is to get revenge by putting the game back on its original path, through their sheer force of will. They will die playing this game, and they cannot be reasoned or argued with. Maybe they still have a target price in mind, but I need to be even more clear:
These infinite-minded players are quietly working to get the other players to drop out and they are not leaving
Remember that Vietnam War analogy I used earlier? Right now, finite-minded players who only care about the target price of a meme stock are simply looking to win. But the converted, infinite-minded players are playing the long game, and while they may have limited resources (the Vietnamese were completely outgunned and outnumbered), you will only be able to move these people from their position once the game is corrected.
Now, you can make the case that this is simply a matter of the 5 stages of grief, and maybe that is true for some of them. But at the end of the day, if their action remains constant (holding and buying), then it doesn't matter.
What does all this mean?
I'd be lying if I said I knew, but I can wildly speculate and sound like I know what I'm talking about, which I will now proceed with.
The market is always trying to achieve equilibrium, but what we are seeing is a motion to achieve rules equilibrium. These players were cheated, so they have created their own set of rules to play by: buy and hold. While these players may be small in number, they are going to quietly drain the supply before anyone notices.
The floor for these meme stocks is going to continue to rise, and these players will continue to get people on board and things are going to snowball. At some point they will attract the attention of someone with real money who believes in their pursuit of justice, or simply uncovers the lopsided odds these people have created. And unlike the squeeze we started to see last week, the supply and demand curve may get so out of whack, that we may see meme stock squeezes come out of nowhere with volatility that will blow our minds.
Even when these infinite-minded players lose, they win
Imagine for a moment that GME collapses to $20 a share. Maybe the next quarter financials are abysmal. Do you think for a moment that these people aren't going to be dumping every single dollar they have into it? This will be like Christmas to them, because GME is not an investment in their minds, it's a ticket for their cause. It's a buy-in to the path of revenge and justice.
And what if anything bad happens to DFV / Roaring Kitty after he's pulled into a congressional hearing? What if there is news of a crackdown on Reddit? These players will rally. They know it's not smart to storm the capital, so they're attacking the system at specific, targeted points, and using their own money to do it.
Some of these people saw what their position was at $480. It was staring them in the face and it was going up. Then they watched it plummet in real time.
Can you imagine the level of conviction these people have? Do you think the hedge funds or even the other players have this level of steadfastness? WallStreetBets jokes about people with diamond hands.
These people have diamond hearts.
I'll say it again: If someone with a lot of money is smart enough to notice all this, the nuclear bomb of a broken supply and demand curve is going to explode, making these infinite-minded players rich, and demolishing those with weaker backbones. We might lose a chunk of the market each time one of these meme stock nukes goes off.
Personally I'm not sure we're ever going back down to $20 for GME. But I'm also shocked that it's above $40 right now. The truth of the matter is this:
The infinite-minded players have divorced meme stock price from the financials and it will be that way until we reach a point where the game resets to where it was on Thursday
This may take days, weeks, months, or years to get there for some of the meme stocks, but it doesn't matter because these people have invented their own rules and there are more players in that position than you or I think. The media will eventually stop talking about these meme stocks, assuming people have walked away, but these players have found their cause and they will be committed to it until their wrong is righted. And they are literally willing to die trying.
Please, please, PLEASE be aware of this, especially with GME. The mindset of a large number of players has shifted almost overnight and they have chosen their battlefield. None of their opponents are fighting the game at their level. And throughout history, when infinite-minded players have played an infinite game against finite-minded players, the infinite-minded players have won. They have won every, single, time.
A Special thank you goes out to my friend Harold who provided me with an article titled There are no Stock Market Heroes by John Rekenthaler. John makes a really strong, well-thought-out case. And I thought the morality play was worth exploring which led me to my findings here. If you ever read this John, thank you as well.