The hype around the wild swings in the shares of US video game retailer GameStop earlier this year threw a spotlight on the world of investing and raised the profile of social media network Reddit as a community to talk stocks.

It shone a spotlight on hedge funds and how they operate. It also led to calls for regulators to enforce greater transparency in stock markets, with a growing number claiming the finance world is ‘stacked against the little guy’.

The ruckus caused by the frenzied dealing in GameStop shares, as well as others like cinema chain AMC and even commodities like silver, can be laid squarely at the door of a Reddit forum called WallStreetBets. Since the GameStop saga the forum has gained more prominence and now has over 10 million users subscribed to it.

Four months since the Reddit boom hit the evening news, Shares explores WallStreetBets to see if anything has changed.

DIFFERENT OBJECTIVES

For those who have been inspired to invest after seeing what happened with GameStop, it’s important to know who these Reddit investors are, as it could well be the case that they have very different backgrounds, goals and objectives when it comes to investing.

Most people on the WallStreetBets forum are not what you would call long-term investors. The majority appear go in and out of stocks in a matter of days, waiting to see if the share prices of certain companies hit a specific level before deciding to cash out.

The analysis on stocks in the forum tends to be less about classic equity valuation metrics such as price to earnings or price to book ratios, and more about the market’s sentiment towards a particular stock and how many days it could take to reach a certain price target.

The majority on the forum tend to be momentum investors. They post an array of charts to speculate when a stock or even sometimes an exchange-traded fund will break out of a certain price range.

Some do talk about a company’s fundamentals – for example, comparing Ford’s price to earnings ratio to that of Tesla’s, analysing cash positions and debt levels and debating competition in the electric vehicle market. But most are mainly concerned about share price swings in the likes of Tesla and others like space company Virgin Galactic, and whether their share prices are ‘going to the moon’.

APPETITE FOR RISK

Most users on the forum appear to have a high tolerance for risk. Those who post about their portfolios on the forum appear to have around 70% to 80% of their money in shares, and the rest in cryptocurrency, judging by their comments.

Their attitude to the wild swings associated with stocks like GameStop can be seen in the general tone of the forum – losses are almost glorified.

One example of a popular post on the forum involves a gif of a woman shaking a coke bottle before throwing it hard at the ground and it then bouncing back and hitting her. As the woman shakes the bottle, the caption on the gif reads ‘Me doing my DD (due diligence)’ before reading ‘Going all-in on my YOLO (you only live once) stocks’ as the bottle hits the ground and then finishing with ‘-69% return’ as it bounces back in her face.

There are hundreds of comments on such posts, most of which involve users also making jokes about heavy losses they’ve made, and with a significant number posting screenshots of their brokerage accounts and some showing losses as high as 80% to 90%.

Meanwhile stocks which continue to draw the most attention on the forum are GameStop, with the push to get its share price higher still ongoing, as well as struggling cinema chain AMC and mobile phone company Nokia – companies which Americans in their 20s to early 40s, seemingly the age range of the vast majority of Reddit users on the forum, remember with fondness from their childhood and teenage years.

TALKING UP PALANTIR

Other stocks that have caught the attention of users on WallStreetBets include Palantir, the US data analytics software company which works with governments and local authorities, as well as firms in financial services and healthcare.

Having more than doubled in price since its stock market float in October 2020, Palantir is exactly the sort of company that attracts users of Reddit’s WallStreetBets forum. It is a high-growth tech stock that the forum users believe to have a niche in large addressable market, in this case helping authorities turn big chunks of data into useful insights and helping companies turn such data into profitable ones.

Their attitude to Palantir, and others from mega-caps like Apple, Microsoft and Tesla to smaller names like GameStop, AMC and Nokia, are often the same. Users on WallStreetBets appear content to swallow losses for as long as it takes, because in their eyes, these stocks are ‘going to the moon’.

Shares welcomes the idea of a community forum to bring together like-minded individuals trying to explore the world of investing. However, it appears that anyone who wants to learn from Reddit will need to understand that recklessly chasing any stock is not a guaranteed ticket to success. By all means, explore the threads, but don’t copy what others are doing without proper research. 

The opinions contained in the screenshots are from Reddit users and not Shares’ journalists

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