A popular online forum on Reddit, r/WallStreetBets, has become very popular in 2021. This subreddit group discusses stocks and options trading amongst various company stocks. Lately, the group has drawn media attention for attacking short-sellers, investors who bet against a stock price, causing in some cases a “short squeeze”. This is where people covering their bet against a stock are forced to buy the stock in the open market.
These investors/people appear to be an online angry mob who are angry at the outcome of the 2008 financial crisis, where some people fared better than others when the economy and stock market crashed. Additionally, people are angry at how the stock market is played, especially the “fat cats” who seem to play by their own rules. This leads to the question is it a fair game?
Nothing is perfect so I agree there are some aspects of the stock market that could be improved. However, the retail investor has seen some great changes to how the game is played. Commissions for trading are basically next-to-nothing, if not free at most firms. Robinhood has spearheaded the move toward fractional-share ownership of stocks. Class-action lawsuits have made it more possible to punish companies who aren’t providing transparency or being a fiduciary to their shareholders. Due to this backdrop, in my opinion, the interest of stock picking by the “average Joe” isn’t going anywhere especially with younger people. Most rules of the game are black and white, so those with discipline and making investments with critical thinking and reason can do well. Acting on emotions and knee-jerk reactions won’t get you very far in the long run. After all, buying a stock can be a risky proposition. Even more so for people who turn the stock market into a casino by trading or timing the market, which increased during the pandemic when people were literally stuck at home and were bored.
Caveat emptor is Latin for buyer beware. It’s the principle that the buyer alone is responsible for checking the quality and suitability of goods when a purchase is made. To a certain degree, this explains the due diligence of someone who buys an investment. Nobody has a gun to your head to buy a stock based on another person’s opinion. There certainly were a lot of people who did well with the “meme stocks” Wall Street Bets targeted, but there are certainly many people who got burned. I hope people take this as a learning moment, just as I’ve done with investment mistakes. Failing is part of long-term success and learning.
The lesson for investors, as Warren Buffett said, is that you don’t have to swing at every pitch. “The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, “Swing, you bum! ignore them.” Easier said than done, but truly a powerful way of explaining successful stock picking.