✍Aenco Academy #30: WallStreetBets — How Social Media and Internet Influencers Influenced the Market
In late-January, there was a dramatic short-term upsurge in GameStop’s stock. It was driven by a large group of small-time individual traders on the Reddit forum (subreddit) r/WallStreetBets. WallStreetBets (WSB) is where members discuss options trading and the stock market. It has now become a well-known platform for its aggressive trading strategies which makes trading stocks like placing bets.
The story has stirred up much attention since the short squeeze on GameStop initiated by the participants of WSB, which remarkably pushed up the stock prices of GameStop (GME) on January 22, 2021. On January 27, they triggered a short squeeze on AMC Entertainment Holdings, Inc. (AMC), which is in a similar position to GameStop. Nokia Corporation (NOK) and Palantir Technologies Inc. (PLTR) were also on their list of targeted stocks. The driver behind this series of activities is that WSB participants were resentful about how short sellers, such as Citron Research, had been bearish on GME’s prospects and shorted the stock heavily. Therefore, an army of retail investors was gathered on WSB, spurred GME’s stock, and sought to catch out the short sellers and make profits.
Retail traders on WSB hold an antagonistic view to many hedge funds and short-sellers. They bet that stocks will go up instead of going down. Unlike the traditional traders, they treat stocks as a quick way to obtain instant additional income than a long-term strategy to build wealth. It has brought about the high-risk day-trading trend. Amid the market frenzy, WSB members frequently use slang such as “stonks” for stocks and “YOLO” (you only live once), and hashtags like #GMEtothemoon in the discussion forum. Such down-to-earth and youthful nature may attract more young retail traders or investment beginners to betting on the “meme stocks,” causing trading volumes to skyrocket.
Additionally, internet influencers contribute to influencing the stock market. Elon Musk, Tesla’s CEO, tweeted “Gamestonk!!” with a link to the WSB subreddit on January 26. Chamath Palihapitiya, the founder of Social Capital, also made a tweet on the same day that he bought calls on GME. The frenzy in retail buying spurred by social media has become evident when GME’s stocks reach a $24 billion market cap on the next day, January 27. Social media can have a great impact on retail trading.
All in all, the internet and media are playing a more important role in transmitting the information. People will be influenced by online information and make decisions accordingly, which in turn affects the physical world. This “David versus Goliath” story hinted that social media can impact financial markets. Hence, it is crucial for hedge funds and short sellers to take note of the retail traders’ strategies and potential risks brought by a discussion on online platforms.
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