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The Rise of Reddit and What it Means for the Serious Trader

Thoughtful and aggressive risk-taking is not something usually used to describe the millennial generation, but it is how Benn Eifert, CFO of QVR Advisors describes the frequent users of Reddit- specifically those that subscribe to subreddit r/wallstreetbets and those that have taken advantage of the GameStop short.

The Reddit forum r/wallstreetbets has gained a lot of traction among its millennial users- the forum, self-described as “Like 4chan found a Bloomberg terminal” is known for aggressive, highly speculative trading strategies as well as its profane rhetoric centered around meme culture.

So how did the platform predominantly used for meme-sharing become an authority or at least a contender among investment and trading strategies?

While it is a predominant thought among many Reddit users nowadays, r/wallstreetbets did not have its beginnings for disdain of elite institutions and hedge fund owners and managers. The subreddit started with more humble beginnings nearly a decade ago.

The graph from Financial Times indicates the uptrend- sheer volume of usership backed by media attention and endorsements from Elon Musk and Alexandria Ocasio Cortez propelled the short sale that Goldman Sachs calls its biggest squeeze in 25 years.

 

This past week, the GameStop hedge funds had to dump holdings at the fastest rate since 2009- shares had spiked over 400% last week, and totaled 1625% across January, costing them billions of dollars (about $19 billion just on GameStop in 2021 so far).

The rise of retail stock buying among the more inexperienced traders is proving to be a detriment to the traditional day trader and hedge fund manager… The volatility brought on by mass buys of shorts required Melvin Capital a $2.75 billion cash infusion from Point72 and Citadel to help weather the losses, and Robinhood, the popular trading-based app, helped curb some losses by limiting purchases of shares.

The new age of investing appears to be more volatile than the Bear vs. Bull market trends that traders had to contend with- while the relentlessness of the Reddit investor looks like it isn’t going anywhere (it is actually gaining momentum), there are few avenues for the investor to hedge bets in a much more secure way.

Real estate may lack the thrill that is day-trading, but what it lacks in action, it makes up for with solid, consistent returns. At Equity & Help, we disrupt the real estate industry in other ways- using our connections and expertise, we acquire our homes from banks and make them available to our investors for far below market price- E&H also finds the perfect family to take care of the home for less than rent, while paying a return averaging 8%-12% to the investor.

While hedge funds are losing out on billions, our investors are raking in solid returns- our Final Quarter results from 2020 speak for themselves.

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