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Wall Street Is Looking To Reddit for Investment Advice (wsj.com) 43

Wall Street professionals tell everyday investors what stocks to buy. But now they have to follow some of these amateurs for signs of where the market is headed next. From a report: Venerable institutions Goldman Sachs Group and Morgan Stanley are tracking the retail trading frenzy, and hedge funds in New York and London have employees combing through the internet forum of Reddit, Twitter or chat startup Discord in search of trading opportunities. They turned to these sources following a period of market mayhem dominated by amateurs on Reddit's WallStreetBets and the Robinhood Markets Inc. trading app who collectively boosted the shares of GameStop Corp. and other companies that had fallen out of Wall Street's favor.

"It's more art than science because it's uncharted territory," said Simeon Siegel, a BMO Capital Markets analyst who has spent his career covering retail companies. One analyst who turned to WallStreetBets this year for insight was Priyesh Mehta, 26, who advises Cayman Islands-based hedge fund Bovell Global Macro Fund. He said he never considered that a group of traders could band together on online forums with the aim of jolting prices, but as GameStop's shares rose in January he downloaded the Reddit app on his phone, made an account and joined the forum.

For the next few weeks, he spent hours on the platform, familiarizing himself with its design. Mr. Mehta quickly learned that the place to pay attention to was the daily thread of people's trades. He began to recognize names of accounts that posted frequently, an indication that those users may have more sway with the group. Mr. Mehta still monitors the forum and warns Bovell's fund manager of highly mentioned stocks that could see volatility. He is also looking for potential stocks that the firm could bet against. "I never thought that retail traders would actually gain this much power in the market," he said.

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Wall Street Is Looking To Reddit for Investment Advice

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  • Hurricanes, plagues, terrorists, depending on reddit for investment advice.

    • It doesn't actually say they're using reddit for investment "advice," it just says they're using it to keep track of the meme stocks, and they bet both ways on them.

  • People who post their trades, are actually posting whatever fabrication they think will make their real trades do well. Those posts may or may not be truth. I doubt they are truth.
  • and always have. They're just asleep at the wheel with their 401K being invested in everything while knowing nothing about it and paying some parasite management fees for passive funds (usually their own, layered, for extra fees).

    • paying some parasite management fees for passive funds

      The management fee for my index fund is 0.02%.

      That is negligible.

      With fees so low, I am happy to let someone else manage my money while I focus on my job and family.

      • I think you are off by an order of magnitude at least there— 0.2% exists for a few Dow, NASDAQ, and S&P index funds but much more often the fees are hidden in other places beyond management fees per-se. My 401k is famous for that crap.

        Personally, I haven’t found it hard to beat the index funds by 3-5 percentage points return in any given year, and significantly more long-term. (YTD I am below the index funds though, but 12-month still above.)

        An additional 3% over 30 years is 2.4x the money

        • "Index fund" these says usually means an ETF, and there are no "hidden fees."

          SPY has a net expense ratio of 0.0945%, and that's the biggest one.

          He's probably in SPYX, which is at 0.20% exactly.

          (Source: Fidelity)

          • That’s what they say but they take money out in other ways beyond stated management fees. Sometimes it is how dividends are reinvested, sometimes the bid/ask spread, sometimes the premium between spot price and net asset value. All of these things in the end impact your return on investment.

            GP stated 0.02%; I agree with 0.2%.

            • SPY is the stock symbol, it isn't a generic abbreviation for S&P 500 index.

              IShares core S&P 500 index has the symbol IVV, and does indeed have a Net Expense Ratio of 0.03%.

              It's right there on your link: IVV though I wrote the above before clicking it.

              You should have said, "IShares IVV is..."

        • by RevDisk ( 740008 )
          Expense ratios are all over the place. My S&P index fund is 0.015. But my 401k offers funds as high at 0.7. Old school 2% fees are becoming less common. And hiding fees may be criminal. If you have evidence that your 401k is illegally hiding fees and committing fraud, please report it to the SEC. Yes, the SEC is often asleep at the wheel, but every so often they nail folks to try to 'prove' otherwise. It's worth rolling the dice.

          Personally I think anything at or under 0.5% is fine for most folks. But
          • It isn’t as much “hiding fees” as looking at long-term rate of return compared to the index. The 401k fee structure is disclosed, but not many people read the fine print. I adminstered my company’s 401k for a while; I forget the term used, but its net effect was reducing the rate of return on funds about 1-1.5% compared to the index. Half the money paid for the “financial adviser” for the plan, and the other half was for Fidelity’s paperwork management.

  • Smart Tech analysts were watching /. since ‘98. Hell, I even met a guy in ‘98 who was scouring AOL, IRC, and other Web 1.0 sites with an automated spider to track positive and negative reactions to various companies/stocks.

    Accuracy is likely to only be a few points better than the average analyst, but hey

    • A lot of the analyst stuff is playing the market. So they buy a stock then pump it and then dump it (all legal of course.) Now the tables are turned as soon as the Ape Army organizes they will be pumping on Reddit what they already own. Probably already are.
  • Obviously, they tell you to buy what they just invested in.
    Obviously the stock went up because they invested in it.
    Obviously that's the actual reason, and a certain event is just an excuse.
    The relationship between what happened and if the stock went up or down, never actually made sense, did it? ^^

    It was obvious too, that somebody would come, to dethrone them. Because: Internet! Duh.

    You're free to call me jealous now. Jealous I've got a conscience and can't harm people... So jealous! I swear! ;)

  • by rahmrh ( 939610 ) on Tuesday August 31, 2021 @05:38PM (#61749775)

    They aren't looking for advice they are looking for the trend of what the crowd/mob is doing or about to do that may affect their trades and/or positions.

    If you get in front of the mob/crowd or simply know where they claim to be going, then you can use that to your advantage.

    • Thats exactly what I was going to say. The most ridiculous thing is the reddit crowd can pump the market and buy options ahead of time before they lead everyone to buy, making millions in the process at the expense of others.

    • by jbengt ( 874751 )
      Exactly. Another misleading headline.
    • Exactly - last Jan while GME was going on I figured out the game was to squeeze the shorts and buy cheap out of the money call options ('lottery tickets') and saw a random tweet about AMC. Hmmm, AMC has a big short interest, has not popped yet so bought 4 near term calls with money I could sacrifice. Next day BOOM - have never seen so little get so big so fast. Largely lucky.

    • by Rinikusu ( 28164 )

      The big thing WSB proved is that a coordinated "assault" of a couple million smooth-brains can really wreck a market. Get couple million people to buy a thousand dollars worth of stock and you suddenly have a hedge funds' worth of power. It also helps that there's a bunch of actual veterans in that group who are scouring financials and looking for short squeeze opportunities and what not. I'm not sure it's really a bad thing, when tons of companies are trading on P:Es of 100, 200, 300+, why not prop up a f

  • Investment bankers, to my knowledge, are the most highly compensated non-managerial employees in the US. Anyone earning more is typically a business owner or entertainer/athlete.

    So the best of the best, the most expensive parasites around...need to turn to random schlubs on reddit? I simultaneously am not surprised to learn investment bankers are shitty and incredibly overvalue...but yet, I want to screan "FUCK YOU" to them for having the gall to rely on reddit.
    • by jbengt ( 874751 )

      Investment bankers, to my knowledge, are the most highly compensated non-managerial employees in the US

      Yes. I met a higher up in an investment bank when he was building a 27,000 sq ft house in one of the most expensive suburbs in the country. One yearly bonus paid for most of it.

    • I thought Actuarial Accountants made more?

    • It's amusing you don't see what those investment bankers are doing. They are looking for the next "OMG! Those evil greedy capitalists are betting against a company I loved when I was 13!" moment. If they are part of the shorting, they can limit their losses. If they aren't. they can buy and ride the rise.
  • wrong, they have no interest in "advice" from reddit, they are looking at trends and social gossip that will affect various share prices.
    • Exactly. Look for those stocks that Reddit idiots will pump up for them. Stuff they can buy in on cheap, let the Reddit folks pump it, then they dump for a nice quick profit while the Reddit folks ride it up and then back down into the ground.
  • Wall Street has always been a clubby, cliquey and closed.

    On slow pre internet days, a nice weekly "round of golf" or "some bridge" was enough to collude, coordinate and exchange insider information.

    Internet and smart phones opened new ways to collude and fix prices better but also increased the chances of being snapped together and the hangers on, side bet artists cotton on to the moves of the big boys much faster too.

    Now this reddit thing seems to be anonymous enough and there is enough noise, and ma

  • Cant stop. Wont stop. Game stop
  • WallStreetBets is a bunch of shitposters who don't know any more about investing that anyone else. Some of them get lucky occasionally and will post bragging about their tendies.

    • I only visit r/wsb occasionally for the loss porn. It's pretty hilarious (the typical uninformed "investor" (aka gambler) YOLOing their life savings on 0-day options)
    • This is exactly why Wall Street is watching them. They are watching for the next "own the greedy capitalists who are betting against our childhood memories!" response from them.
  • by WankerWeasel ( 875277 ) on Tuesday August 31, 2021 @07:37PM (#61750163)
    Nah, they're just looking for suckers willing to boost any stock up, that they can pump and dump, leaving the Reddit losers to get screwed. Reddit does it themselves too. Someone claims XY stock is going to the moon (after they themselves buy a bunch for cheap). Thousands of idiots pour in to buy it, pumping the price, allowing the original folks to dump it for a healthy profit, while the rest hold on to it as it crescendos and crashes on them.
    • Or they short it at the peak

      "He is also looking for potential stocks that the firm could bet against."

      When he says, "I never thought that retail traders would actually gain this much power in the market" it isn't necessarily what people think. Stock language is narrowly parsed. What people say often means the opposite of what it sounds like they said, because they mean it narrowly and literally. Here, he means "power" in the ability to move a price. He isn't saying they benefit; they move it up, and then it

  • they're salesmen. It's one of the dirty secrets of Wall Street. The entire operation would collapse except that's where our Aristocracy plays with the money and if we don't let them they'll destroy our economy. We could stop letting them have unlimited money & power, but every time somebody suggests that there's cries of Communism and we shut our brains off and let them go on raping us.
  • In The Shockwave Rider with the Delphi pool.

  • Instead of trying to predict what stock will spike, just watch the Top % Gainers list, and see what stock is already spiking 100% to an irrational valuation, and just short it, as it will inevitably crash.
    • But, what if those stocks "already spiking 100% to an irrational valuation" are sentimental favorites of /r/WallStreetBets?

      Gamestop is wildly overpriced because pros saw it was overvalued, shorted it, and then the WSB crowed started trading up the value of the stock because they have feels for GameStop. The only reason GameStop is trading near $200 is WSB.
  • by DaveV1.0 ( 203135 ) on Wednesday September 01, 2021 @09:01AM (#61751719) Journal
    They are watching the idiot amateurs who are willing to lose thousands to "own the greedy capitalists" who are the professionals and have looked at the financials of a company the reddiots love (gamestop, AMC, etc) and see said company is overvalued and thus want to short it to make money when the stock goes down.

    /r/WallStreetBets isn't a source of advice. It is literally a force that can move the market and so now the professionals are keeping an eye on what they are doing to be able to adapt to the changes in mood and movement.

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