Controlling the NYSE From Mom’s Basement: The Story of r/wallstreetbets

We tend to think of investing as one of the most difficult tests of intellect, instinct, and foresight. Do proper research, pick a strategy with an acceptable level of risk, and of course diversify your portfolio to more than a single stock. 

However, there’s a massive following (up to 12 million self-described “degenerates”) who believe research is for “nerds” and all one needs to get rich quick is a giant community to accomplish short squeeze after short squeeze on meme stocks with limited real value. This is the internet monolith known as r/wallstreetbets.

Most known for the Gamestop short squeeze in January of last year, the subreddit has a recent history of tension with popular trading platforms like Robinhood, as during periods of time where stocks like GME were extremely volatile the platform locked users into their positions, halting buying and selling. 

Before their plans were done, the subreddit’s short squeeze inflated GME’s share price by over 600%, attracted tweets from billionaire Elon Musk and drew 7 million more followers to the subreddit. Due to the magnitude of the GME short squeeze so-called movement, many first-time stock traders joined in, using directions from the most popular posts to create portfolios for the first time (often which were 100% GME stock).

GME to the moon, Robinhood to the ground

In the wake of the controls put in place by Robinhood, leading members of the community wrote post after post alleging harmful market manipulation that took possible gains away from members that had yet to hop on the trend; reviews of the app plummeted to 1-star within days. The most popular posts of all time on r/wallstreetbets are from last year’s craze, rallying users to class action lawsuits against the company. However, a Californian judge dismissed the suit shortly after it was officially filed, citing the user agreement of the app as a basis for the action controls. 

The subreddit replicated the GME method to a variety of stocks with limited real merit for the future: AMC, Nokia, BlackBerry, and most recently Bed Bath and Beyond (of which chatter on the subreddit focuses on currently). None, however, reached the level of GME.

Implications of this Kind of Investing

Individuals across the trading community point to the almost always negative returns of short-term trading strategies, which the subreddit almost exclusively consists of. The popular consensus of critics is that the gambling-like strategies of the community are harmful to a particularly young and inexperienced audience who will suffer immensely from the kind of losses an undiversified portfolio creates.

Many of the users of r/wallstreetbets challenge criticism of the carelessness of their investment strategies by claiming to be part of a larger movement against wealth inequality, all-powerful hedge funds, and third-party trading apps that sell unknown firms users’ data. 

Yet, the short squeeze attempts and other promoted stocks on the subreddit have offered a small percentage of users returns at all. It seems r/wallstreetbets is less of a roadmap for new investors and more of a tool for individuals to lead wide-eyed newbies into whatever stock they are holding.

This is the danger of communities without open, clear markers of the kind of performance users can expect from strategies. On Reddit, one gets to see enticing images of extreme profit, and this media gets boosted to the top above all else. Little of the many who lose out on these gambles are shown at all. 

Daedalus combines the social aspect of these communities with measures that actively promote the success of each trader and don’t lead investors to guess through each decision on their own. The future application of creating or buying into effective algorithms spells a more equitable performance between the users of a platform/community. 

Don’t mistake large headlines and waves created by pages like r/wallstreetbets for a sign of an informed community of great decision-makers. And while it is satisfying to see a system that doesn’t often leave a path for disadvantaged individuals to get to the top temporarily broken through the leverage of everyday Joe’s, the piece of the pie that each individual can expect from communities like this is misleadingly minuscule.