In February, a quant fund called Cindicator Capital posted a job listing for someone with three years of trading experience — and at least 1,000 karma on r/WallStreetBets. “Important: NO higher education in economics or finance,” the listing said. Most of the time on the job would be spent on Reddit, Twitter, and Discord, finding out what retail traders are up to. Among the job duties listed: “opening six-figures OTM [out-of-the-money] options trades with the firm’s own capital” and “trying your best to prevent our risk management from having a heart attack.”
This listing actually made sense. After a few boring years where normal people mostly bought index funds, the pandemic sent a bunch of people who otherwise would have bet on sports into the welcoming arms of a new batch of mobile-first trading platforms because, well, there weren’t any sports to bet on. So retail traders bought into stocks — not with the idea of making a long-term investment, but rather with the idea of quick money. More sophisticated traders exploited market inefficiencies. Others just yoloed into the memes.
There’s more incentive than ever to try to become a finance influencer
And then, in January, the retail traders decided to flex: GameStop was so heavily shorted that the traders figured that if they all jumped in, they would drive the price up. And they did: the price skyrocketed 1,900 percent to $347.51 at the close of trading on January 27th from a close of $17.25 on January 4th. The move was coordinated on r/WallStreetBets, a subreddit with millions of subscribers.
One retail investor making a trade isn’t significant. But the rallying cry of r/WallStreetBets is “Apes together strong!” None of GameStop’s fundamentals changed, but the stock surged anyhow as the retail traders cheered each other on. Much to the joy of the apes, hedge fund Melvin Capital lost 53 percent on its investments in January, largely due to the efforts of retail traders. Another hedge fund that took big losses on GameStop shut down completely.
Having demonstrated that they could move markets, the meme traders piled into other stocks: AMC, Bed Bath and Beyond, Nokia, Blackberry. AMC elected to yolo along with the retail investors, offering them free popcorn and announcing customers could buy sodas and other concessions with Bitcoin by the end of the year. (There was also a pantsless Zoom.) It has staved off bankruptcy, and its stock is up more than 1,600 percent this year, as of the close of market on October 29th.
And with the rise of retail investors has come a new class of investing influencers, of whom …….