In the days of yore, revolutions were started with pitchforks and axes. They were bloody events that started when the general population of a country felt mistreated by the ruling classes. Today, revolutions still happen but instead of pitchforks and axes, the general population breaks out its keyboards and mouse clicks.
Social media platforms have become the battleground to effect change in a wide variety of issues from politics, climate change, health care and financial inequities. It’s the battleground in the stock market that we want to talk about, and we believe revolution has come.
As more and younger investors come into the retail stock market, they are quickly schooled as to the advantages that institutional investors and hedge funds have over them. While retail investors have access to some remarkable trading platforms, they are way behind the big trading houses on Wall St. with high-speed trading and algorithm driven analysis.
In the past, Wall Street traders might take a short position in a large company (Pershing/Herbal Life) and there could be riveting media coverage over the “Clash of the Titans”. In recent years, the interest in short selling by larger investment companies has filtered down into the small to mid-cap stocks, the playing field of the retail investor, and smaller investors don’t like it.
This year we saw evidence of a financial revolution in the form of meme stocks. When we talk about meme stocks, we’re referring to stocks that see sudden and dramatic surges thanks to social media hype. Some of the better-known meme stock plays this year were AMC Entertainment (NYSE: AMC), GameStop (NYSE: GME) and Support.com, Inc. (NASDAQ: SPRT).
GameStop’s short squeeze, led by the Wall Street Bets (an investment group on Reddit) members led to a more than 50% loss in the large hedge fund Melvin Capital. The rally in movie theater chain AMC Entertainment, also led by the Reddit army, caused billions of dollars in losses for short sellers in May and June. Short selling seems to be a sensitive area for retail investors.
Support.com, Inc. (SPRT) is a company recently brought under scrutiny by the Reddit army as a small cap company (under 200M) with a large short position (62% of the public float). The company shares have experienced nice gains since June but this one is still a work in process as the short positions grew in July.
Reddit seems to be a driving force behind some of the short squeeze opportunities being identified and exploited in today’s market. There are many subreddit sites dedicated to investments and stock trading with tens of millions of followers. There are a couple sites on Reddit that seem to be on top of the retail investor trends such as r/wallstreetbets and r/breakoutstocks, focused on finding near term catalysts and stocks on the verge of a potential breakout. It’s the combined influence of this virtual Reddit army. that serves to match the power of the institutional investment houses. The retail investor revolution is in play, their army encamped on Reddit, and blood has been spilled.
Big traders like hedge funds and investment banks already have advantages over individual investors with sophisticated trading platforms using algorithms and super high-speed trading. The activities by retail investors, communicating with each other on Reddit, creating meme stocks that are being acted upon, seems to be a message to the big market manipulators saying, “stop ruining companies’ values with your activities.” Truly a keyboard revolution of sorts.
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