12 investing terms to know before you see Dumb Money

January 2021. The pandemic was in full swing, and in the United States thousands of rioters stormed the Capitol Building in Washington DC  following the results of the 2020 presidential election.

At the same time, one of the most fascinating financial developments in recent years was also playing out: the GameStop short squeeze. 

That's the story portrayed in Dumb Money: a new film based on Ben Mezrich's book, The Antisocial Network, which lays out the GameStop saga and the eclectic cast of characters involved in it including Keith Gill (Paul Dano), Gabe Plotkin (Seth Rogen) and Ken Griffin (Nick Offerman).

As a film about investing it's naturally filled with financial terminology (not to mention internet slang) though.

So for anyone wanting a quick refresher before heading to the cinema, here's a spoiler-free list of the key terms that crop up in Dumb Money.

Bull and bear sentiment  

In financial markets, investor attitudes or sentiment is often described as being bullish or bearish. Being bullish refers to having an optimistic outlook, while bearish sentiment is negative. 

Call options 

A call option, or just a call, is a contract between a buyer and a seller for a specific stock or security. 

The owner of the call option has the right (but not the obligation) to buy the security at an agreed upon price within a specific timeframe, whereas the seller must sell it if the buyer exercises the call.

Diamond hands 

An expression made popular in online communities like WallStreetBets which refers to holding on to an investment despite its volatility or the pressure an investor is under to sell it. Often accompanied by diamond and open hand emojis.

Dumb money 

The title of the film does have a meaning behind it. "Dumb money" is a pejorative for retail investors (or their investments), while "smart money" is used to describe institutional investors.

Multibagger 

At one point in the film the term "five-bagger" is used to describe a stock.

This just refers to a stock that has increased its value by five times since it was purchased, but it can be used for any level of price growth from a 2-bagger (100% growth) upwards.

Pump and dump 

A pump and dump scheme is a type of fraud in which owners of a particular stock spread false or misleading information about it in order to entice new buyers in and drive (pump) up the price.

After the value has been inflated they'll then sell (dump) it for a profit.

Retail traders 

Retailer traders are simply individuals who uses their personal funds to invest.

On the other side of the coin are institutional investors, like superannuation funds, managed funds and hedge funds, which trade and manage investments for larger groups of people or institutions.

Robinhood 

An American trading platform founded by Baiju Bhatt and Vladimir Tenev which became popular among retailer investors for offering commission-free trades on the likes of stocks and ETFs.

Short selling  

A trading strategy which is based on the belief that the value of a particular stock will drop.

In practice it could involve a short seller borrowing shares from a broker and then - all things going to plan - buying separate shares on the open market once the price has dropped.

These are then returned to the broker, allowing the short seller to pocket the difference. 

Short squeeze  

A short squeeze happens when a stock that has been widely shorted experiences a rapid (and often unexpected) increase in price, which then forces short sellers to buy shares in order to cover their short positions and limit their losses.

The uptick in buying can then drive the price of the stock even higher, forcing even more short sellers to buy.

To the moon  

Another phrase used online which, in essence, expresses enthusiasm for a particular stock or its future value e.g. "GameStop is going to the moon." Often accompanied by rocket emojis.

WallStreetBets 

A popular online forum for discussions related to stock trading on the social media platform Reddit. Started in 2012, the subreddit now has over 14 million subscribers.

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