3 Powerful Things I Learned When Taking Investment Advice From a Reddit Group
Amateur traders outperformed the school trained professional experts
I have invested for years but I actually took investment advice from a Reddit group for the first time this week. For me, I never use Reddit but I heard people talk about a Reddit channel making money investing on dead stocks. I had to find out what the noise was about.
After quickly catching up to what was going on, I made a trade on Gamestop (stock ticker GME) and sold it in 24 hours. The price was going up too fast for me, so I had to sell. When I was done, I walked away with $205 on two stocks I bought. I invest but was very cautious about making this trade as the stock was already climbing for weeks by the time I got in.
My investment in the Gamestop stock went from $328.75 to $431.43. I would have made more but the exchange was overwhelmed when I tried to sell at $480. At that point, I felt it was time to take my money off the table.
A user in the Reddit subgroup called Wall Streets Bets was pushing for Gamestop to hit $500. I had a feeling people would take their investment off the table before that and I was right. Gamestop had fallen to $258.45 a few hours after I sold as I was writing this.
Swing trading is risky if you don’t know what you’re doing. Basically swing trading is buying an investment at a certain price and selling the investment after you have made money on your trade. Usually, the trade is executed within a few days, sometimes in hours if the stock changes direction.
The facts behind Gamestop
Gamestop is a place to buy videogames and the store has struggled for the last few years as games are going online. This has made the value of Gamestop decrease rapidly.
In January, Ryan Cowen, the co-founder of Chewy, the online seller of pet supplies, joined Gamestop’s board. He made an investment of $76 million or 12.9% of the company. This saw the price of Gamestop stock increase slightly.
Small investors wanted to keep the stock going higher. Some investors have no idea what they are doing and only followed what others were saying, buy shares of Gamestop.
The price of Gamestop reached a high of $482 today before dropping.
Robinhood and several other investment firms completely removed Gamestop as an option for trading. Another stock that was removed or limited to trade was the movie theater AMC (stock ticker AMC). Instead of an open market for traders, this is becoming a market to help the rich stay rich. Robinhood customers have sued the trading app over the restrictions.
WallStreetBets is crushing expert traders
Th WallStreetBets subReddit group was created in 2012 and has over 3.5 million followers. The group discusses investing topics and Gamestop has been one of the latest discussions.
After Cowen joined Gamestop, Wall Street traders have been shorting the stock. Melvin Capital and Citron Research have lost money due to the surge created by the Reddit group. Melvin Capital actually had to get a $2.75 billion bailout due to the Reddit investors.
Other stocks that were once thought dead have seen a resurgence due to the Wall Street Bets group. AMC, Bed, Bath & Beyond, Blackberry, and Nokia have seen a surge in price. The companies have seen stock gains of 310%, 46%, 24%, and 70%.
The Reddit group has grown so fast the moderators are having a hard time moderating. There are so many comments that they cannot read them all.
The war against the rich continues as WallStreetBets plan their next investment.
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References
A decentralized Reddit forum called WallStreetBets is causing chaos on Wall Street