Stocks: They’re so random 🤪 these days.
The bonkers story of a Reddit forum that turned the Gamestop stock into a meme and sent the company’s market value soaring has put a spotlight on the phenomenon of amateur investors giving Wall Street pros a run for their money. A Venn diagram of the types of folks brigading short-sellers on r/wallstreetbets and Elon Musk fans would surely be a circle. And this morning, Musk once again showed the power of his influence when he tweeted the words: “I kinda love Etsy.”
In a matter of hours, Esty’s stock was up 10%. At the time of writing, the stock’s price is starting to settle closer to the range where it ended trading yesterday afternoon. But that doesn’t mean the Musk bump is over.
Earlier this month, Musk was responding to WhatsApp’s announcement that it was changing its privacy policy to feed more data to Facebook when he recommended people “use Signal,” the independent encrypted messaging app. Plenty of Musk’s followers got the message and the app was overwhelmed by new users. But others were either confused or saw an opportunity because the stock price for a totally unrelated company called Signal Advanced suddenly saw its market value rise by 5,100%.
Signal, the app maker, felt compelled to warn people that they are investing in an entirely different company (the Signal app is developed by a nonprofit), and Signal Advanced’s stock price fell back down but leveled out with a significant boost. On January 6, the stock was trading at 60 cents per share and had been in that range for a couple of years. Today, it goes for about five bucks a share.
Is this a wise way to invest? Not at all. But as Bloomberg’s Matt Levine points out, this is a kind of grassroots market participation we haven’t really seen before. It’s mostly untethered from the metrics that are usually used to evaluate a company’s value, and it’s rooted in online community building. Bored people in quarantine are just as drawn to the social experience of driving up the price of a dying stock as they are compelled by the promise of big profits. And for now, they’re kind of winning. But bubbles burst, and this can only end poorly. If you don’t know what you’re doing and still want to invest in the stock market, perhaps just buy an index fund and ignore it.
DISCUSSION
I love Levine’s description of it as the “Boredom Markets Hypothesis”. You’ve got a whole ton of people with Robinhood accounts basically gambling in the stock market instead of sports and regular gambling. Most of them will probably lose money on net, but they can still send things on a wild ride (and it’s hilarious that short sellers ended up at war with a freaking sub-Reddit).