Reddit’s r/WallStreetBets wasn’t always so militant. The forum was once a place for people to post their most ridiculous bets — a parody of the otherworldly gambles that Wall Street prop traders used to take.
But then something unexpected happened: Short-sellers started to get involved in a world they didn’t quite understand. On Jan. 21, when famed short-seller Andrew Left posted a $20 price target on GameStop (NYSE:GME), Reddit users took that as a collective slap to the face. No longer was this a fun game of moonshot investments. Out of nowhere, a “David versus Goliath” fight emerged. Suddenly, any attack on GameStop or other r/WallStreetBets favorite was an insult — not even to their collective intelligence — but their very core sense of being.
“To Melvin Capital: you stand for everything that I hated,” wrote one member of r/WallStreetBets. “This is personal for me, and millions of others.” Identity politics had suddenly spilled over into identity investing.
As investors steel themselves for a bumpy GameStop stock ride to $50 or very possibly to $500, they need to remember one thing: It’s supposed to be fun. And if you do lose money, make sure you don’t let Reddit’s r/WallStreetBets become your QAnon.
QAnon and Identity Investing
Last week, author Diane Benscoter gave her assessment of a recent American phenomenon. It “establishes this camaraderie and this feeling of righteousness and this cause for your life. And that feels very invigorating and almost addictive. You feel like you are fighting the battle for goodness, and all of a sudden, you feel like you are the hero.”
She wasn’t talking about Reddit’s r/WallStreetBets, though — the David versus Goliath stock market battle that brought at least two hedge funds to its knees. Far from it. Instead, she was referring to QAnon, an ultra-right group of conspiracy theorists.
Few would confuse the playful jousting of Reddit stock investors with a group of conspiracy theorists convinced that Democrats are collectively hiding a secret cabal of Satan-worshipping, baby-eating pedophiles. r/WallStreetBets, after all, started with retail investors showing screenshots of out-of-the-money options, some wins, and often devastating losses. It was much like a stock investor’s version of “America’s Funniest Home Videos” — painful yet impossible to turn away from watching. The forum also doubled as a gateway for new investors.
Not only did the subreddit get people involved in their finances — it taught that losing money is fine as long as you keep trying.
But the longer that young investors remain in a collective echo chamber, the harder it becomes to tell the difference between convivial and conspiracy.
Cult Members? Meet Cult Stocks.
In a broader sense, identifying with an investment style is nothing new. Value investors have always touted their ability to dig up diamonds in the rough, while growth investors have focused on finding big winners. Those wanting to sit at both lunch tables (like yours truly) have even come up with their own labels like GARP, or growth at a reasonable price.
Experienced investors will know that people can change investing styles as easily as they change clothing. Warren Buffett pooh-poohed the airline industry for years before snapping airline stocks up himself. And Phil Fisher, the father of modern growth investing, published a book toward the end of his investment career titled Conservative Investors Sleep Well. The market always tells you soon enough if you need to change your investment strategy.
Social media, however, has upended that notion. Today, investors don’t have to settle for broad investment theories; they can find supporters for their individual investments. Tesla CEO Elon Musk has almost 50 million followers on Twitter, while entire subreddits are dedicated to specific stocks. Studies have shown (unsurprisingly) that owning stocks magnifies retail investor reactions to these types of sites, which can cause people to get stuck in their ways of thinking.
Even apps like Robinhood unintentionally nudge investors into siloes by showing them only the top stocks of the day. It’s a curated world where stocks only go up, and you’re always right.
The Social Media Echo Chamber
Young investors were already more primed toward identity investing. A study by Ryan Wood and Judith Lynne Zaichkowsky published in the Journal of…