GameStop & Co .: Stock tips from WallStreetBets: What good is the financial advice on Reddit? | message
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Reddit users hunt down hedge funds
GameStop shareholders achieved returns of over 1,000 percent
Tips from online forums are not suitable for long-term investments
The hype surrounding GameStop and Co. has now also brought the social media platform Reddit, which has long been quite unknown in Germany, into the spotlight. The multilingual website acts as a so-called social news aggregator and offers registered users the opportunity to publish various content such as text contributions, short videos and images.
Reddit – an alternative to Instagram
The respective contributions of the users can be rated negatively or positively by other users after their publication, whereby the assessment has a direct effect on the visibility of the respective posting. Accordingly, there is a good chance that particularly popular posts will spread rapidly and go viral.
The founders of the platform, which was launched in 2005, Steve Huffman, Alexis Ohanian and Aaron Swartz, have thus created a forum which, for many experts, is a real alternative to Instagram and Facebook. “Reddit is online, but it reflects the rest of the world, these are real people with real interests,” said Christine Lagorio-Chafkin, author with US business magazine Inc., compared to “Deutsche Welle”.
Lagorio-Chafkin, who has dealt extensively with the Reddit phenomenon, sees the main reason for the unrestrained openness of the users in the anonymity of the users, who usually all use a pseudonym. “This allows users to talk more openly about private things, such as their relationships, their mental health or their finances, even if things are not going so well,” the self-taught Reddit expert continues.
In contrast to Instagram and Facebook, Reddit users are primarily concerned not only with optimized self-presentation, but rather with the exchange of thoughts, advice and opinions. “Everyone wants each other there
as a shiny, photo-shoped version of themselves. But they talk about their real problems on Reddit, ”Lagorio-Chafkin continued.
Financial planning with the community
The fact that users of Reddit have long been exchanging ideas not only about their private worries and problems, but also about speculative stock market investments, can be seen, among other things, from the recent price capers of GameStop shares.
So it happens that some users in so-called subreddits, i.e. thematic sub-groups of the forum, exchange views exclusively on the subject of trading and investing. In such subreddits, very inexperienced small investors often ask open questions to the community. The inquiries of the users range from: “Is it better to save on the purchase of a property or should I invest in stocks?” up to “I’m getting married – should I share a bank account with my partner?”.
WallStreetBets – Reddit’s knights of fortune
In contrast to the classic financial subreddits such as r / personalfinance, r / eupersonalfinance or r / StockMarket, the forum’s best-known subreddit, r / WallStreetBets, does not deal with boring investments and budget planning, but rather with speculative stock tips.
These users “are just interested in the occasional day trading”, so the simple explanation of the Reddit expert Lagorio-Chafkin. The group developed such a buying dynamic on the stock exchange that it catapulted individual titles through the roof within a very short time.
GameStop & Co. – the speculators’ favorite stocks
Probably the best-known stock in this context is the paper of the US video game retail chain GameStop. While the share slumbered for months and years and still cost around 20 US dollars at the beginning of the year, the paper suddenly climbed like a rocket to over 450 US dollars due to the Reddit hype and thus generated an incredible performance within a very short time.
In addition to the shares of GameStop, the shares of Koss, Express, AMC Entertainment, Cel-Sci, Nokia, BlackBerry, Eastman Kodak and Sundial Growers also showed similar rapid price fluctuations. Analogous to the shares of GameStop, this share was also recommended for purchase by a large number of Reddit users.
Reddit Community vs. Wall Street
The selection of the individual stocks is not quite as random as it seems at first glance. The papers of these companies are some of the most shortened stocks on Wall Street. In this respect, many Reddit users did not buy the respective shares solely for reasons of return, but rather in order to rock high losses for the big players on Wall Street or the big financial investors and hedge funds.
The Reddit community, the hedge fund Melvin Capital, which has bet massively on falling prices for GameStop shares, brought losses in the billions. The users of the forum have thus succeeded in turning the extremely lucrative short sale of the hedge fund into a billion dollar grave. Due to the community’s rush to buy GameStop shares, the hedge fund had to buy back the shares on the market at much higher prices instead of at lower prices as planned.
A new phenomenon on the stock exchange
Despite the fact that many of the young speculators in their lives have most likely not had much stock market experience and may not even know who Warren Buffett is, the success of individual community members should not be belittled. After all, many professional investors do not achieve returns of over 1,000 percent in a few days and weeks in their entire life.
However, investors must always be aware that such speculative bubbles not only produce winners, but of course also numerous losers. Investors who, for example, only jumped on the GameStop share hype at a price of 300 US dollars are now sitting on book losses of over 80 percent.
The hype surrounding the share was enormous in the short term, but in a few weeks nobody will probably be interested in the paper anymore. “One could compare the lifespan of such developments with that of Internet memes.  They pop up suddenly, go viral, and then fade away again. After a while, people just get bored of it, “Lagorio-Chafkin said of the so-called Reddit stocks.
Sensible investments look different
Accordingly, private investors in particular should refrain from blindly investing their money in supposed “hot stocks” just because they are being discussed in various online forums and may have risen over several days. Because Warren Buffett already knew: “The dumbest reason to buy a stock is because it goes up”.
Investors who still itch their fingers from time to time can, of course, set up a kind of “Spadepot” in addition to their main depot, with which they can then speculate wildly. The respective uses should, however, always be brought into line with the individual loss-bearing capacity.
True to the motto of old master Kostolany: “Those who have a lot of money can speculate; those who have little money may not speculate; those who have no money must speculate”.
Pierre Bonnet / Forex-news.com.net editors
This text is for informational purposes only and does not constitute an investment recommendation. Finanzen.net GmbH excludes any right of recourse.
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