In recent years, Reddit unquestionably changed the face of individual investing. It propelled stocks not only to higher prices, but into the broader consciousness.
The platform’s power may have faded from its peak. But Reddit remains a fascinating resource for investors — and a valuable resource, when used properly.
What Are ‘Reddit Stocks’?
The term “Reddit stocks” has a number of definitions that have shifted over time. The simplest definition, obviously, is that a Reddit stock is a stock that has gained traction on the Reddit social media platform. It’s been the subject of multiple posts and extensive discussion.
Of course, the question is why a stock gains traction on Reddit in the first place. There do seem to be some characteristics that attract Reddit users, characteristics on the whole that could define a “Reddit stock” even if that stock is not necessarily trending on the platform at the moment.
Who are Reddit users? They are overwhelmingly individual investors who believe in doing their own research.
Indeed, they did so with perhaps the original Reddit stock: GameStop.
Before GameStop turned into a national story in January 2021, it became one of the most popular stocks discussed on Reddit. And though the GME story would come to revolve around a short squeeze, much of the early discussion focused on GameStop as a turnaround play. Bulls on the site pointed to the pending arrival of new gaming consoles and the expansion of the company’s digital strategy as potential catalysts for upside.
The case played out on its own: in the second half of 2020, GME stock more than quadrupled. The explosion of the stock the following January brought newfound attention to Reddit and particularly the r/WallStreetBets subreddit. With that, the concept of the “Reddit stock” firmly entered the investing universe.
But the rise of GameStop also changed Reddit — and Reddit stocks. GameStop literally created millionaires out of Reddit users. And so Redditors, as those users are known, looked for the “next GameStop”.
That’s how high-risk, high-reward plays became popular. So did high-growth, early-stage businesses, many of which went public via mergers with SPACs, or special purpose acquisition companies. Given the success of GME, low-priced stocks which had fallen hard became popular. So did consumer-facing businesses with stories that were easier to understand for investors new to the stock — or easier to explain for those doing “DD” (due diligence) posts on the platform.
To be sure, there were, and are, exceptions to this rule. But many Reddit stocks do look like GME in 2020: an easily understandable thesis with the potential for enormous upside.
What Are Meme Stocks?
Of course, GameStop’s January 2021 rally moved the stock well beyond the investing world, and into the broader consciousness. That in turn moved the community of GME adherents beyond Reddit to other social media platforms, most notably Twitter — and drove demand for entirely new communities around entirely different stocks.
And so the “meme stock” was born.
A meme stock, simply put, is a stock where demand is created, at least in part, by communities on social media. Adherents will post “memes” — digital content that spreads virally — in support of the stock. The attraction to the stock is not based on fundamental analysis or qualitative research, but simply the community that develops around that stock.
Post-January 2021, GME unquestionably became a meme stock. So did movie theater operator AMC Entertainment (NYSE:AMC). The company’s own chief executive officer refers to AMC shareholders as “apes”, their preferred online nomenclature. AMC issued preferred stock with the ticker ‘APE’.
Amid the January 2021 squeeze in GameStop, many meme stocks were heavily shorted (AMC among them). In most cases, the ‘meme-ness’ faded.
Since then, with the exception of GME and AMC, meme stocks have mostly come and gone. Bed Bath & Beyond (NASDAQ:BBBY), for instance, soared in early 2021 and then had another brief burst in mid-2022. Shares of AMTD Digital (NYSE:HKD), a Hong Kong-based financial services company, rallied more than 20,000% in a matter of weeks; the company’s market capitalization briefly cleared $300 billion.
Other stocks have seen short, steep rallies. None have had the permanence of AMC or GME.
How Does Reddit Impact The Stock Market?
Reddit stocks and meme stocks are not the same thing — but there is a fair amount of overlap. Both rest on enthusiasm from individual investors, and that enthusiasm can be fickle.
Indeed, overall, that enthusiasm has faded steadily. In 2021, Reddit absolutely impacted the stock market.
Even before GME reached its late January highs, at least one hedge fund nearly blew up after shorting the stock; it would eventually close a year later. Well-known short sellers ended the practice entirely; it was simply too unpredictable to bet against potentially thousands of united retail investors.
Meme stock rallies made thousands of dollars for investors in dozens of stocks. And following the GME squeeze, Redditors clearly moved more aggressively into the options market, posting wins (and losses) on the outlandish r/WallStreetBets subreddit. Those options trades could and did move the underlying stocks.
But over time, the enthusiasm behind both Reddit stocks and meme stocks has faded to some degree. Part of the reason is that 2020 and early 2021 proved to be the most fertile ground possible for both trends. Lockdowns driven by the novel coronavirus pandemic left consumers with fewer options for entertainment. A rising stock market meant that posting a crazy trade on Reddit not only scored social media posts — but might create real profit as well.
In a more normalized world, Reddit simply doesn’t have the impact it used to. That’s not to say the platform has no value, that it doesn’t surface quality investing ideas, or that it can’t move stocks. But it does seem like, for better or for worse, the power of Redditors to move stock has diminished markedly.
How To Find Trending Stocks On Reddit
To be sure, finding trending stocks on Reddit still can be a useful exercise.
Of course, investors still can go the direct route. Subreddits offer the ability to sort by “hot” posts, which will display the most commented-on and/or most-viewed discussions. As we’ll discuss in a bit, each subreddit has its own style and focus; as a result, trending stocks on each subreddit can vary (though there is often a good deal of overlap as well).
By flipping through those subreddits, investors can find stocks that are trending on Reddit — but also find the version of Reddit investing that works best for them. Some of the content admittedly can be overwhelming to newer investors — each subreddit has its own language and its own callbacks — but the intuitive interface and the sheer amount of content means new users can get caught up to speed rather quickly.
How To Use Reddit To Invest? Is Reddit A Reliable Place To Research Stocks?
Much like the Internet as a whole, Reddit investing does require some skepticism.
Again, most — though not all — Redditors are relatively inexperienced. What looks like extensive due diligence may contain errors, or only tell one side of the story. And there’s little, if any, ability to verify the experience and expertise of a poster.
Some Reddit posters are industry veterans; many are new to the field. Like most new investors, they make mistakes, and it’s not always easy to catch those mistakes without painstakingly replicating the research done.
That said, inexperience and passion can be good things. Posters on Reddit are anonymous; they’re not worried about their reputation, or going out on a limb with a failed trade. (Indeed, particularly on r/WallStreetBets, a failed trade is a sign of courage to be applauded rather than a sign of failure to be scorned.) There’s very much a sense that fresh eyes can find ideas that professionals aren’t finding, or at least analyze those ideas in a way that professionals either can’t or won’t. Again, that’s precisely what happened with GameStop stock; even before the stunning January 2021 rally, Redditors won the trade, and professional short sellers lost it.
That’s not always going to be the case, however. In most cases, at least over the long haul, experienced and professional investors do have an edge. In that context, one specific issue with Reddit is the platform’s structure. Reddit users get what are known as “Community Points.” As the site itself puts it, those points mean “the biggest contributors stand out from the crowd.”
In some crowded subreddits, however, newer contributors may not be able to post at all. This can, and does, create a bubble around the underlying stock(s). Skeptics, let alone outright bears, either won’t have their posts published, or at least those posts will get relatively little traction. Those that can post are incentivized, if only subconsciously, to push their sentiment in the direction of the group as a whole.
Indeed, in some subreddits, true debate can be essentially impossible to find. And understanding both the bull and bear cases for a stock (or option trade) is an essential part of doing successful, detailed due diligence.
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Reddit Investing Subreddits
The nature of the content admittedly will vary based on the subreddit. At this point, each has developed its own tone, its own memes, and its own leaders. And each serves a different type of investor with different interests. Among the largest are:
r/WallStreetBets. The biggest of the investing subreddits, with 13 million subscribers at the moment, WSB is not for the faint of heart. Subscribers are known as “degenerates”. Memes fly fast and furious. So do insults and (to put it mildly) questionable content. The subreddit itself says it is like “4Chan (a notorious online message board) found a Bloomberg terminal”.
To be sure, there are interesting nuggets of financial news and, occasionally, deep dives on individual stocks. But WSB is more about discussing stocks in an edgy manner than researching stocks in a diligent one.
r/StockMarket. On the other hand, r/StockMarket is a more mature, more focused subreddit. Harassment is prohibited. Memes are allowed only on weekends.
Discussions here range from the direction of the equity market as a whole, to sector themes, to individual discussions. Unsurprisingly, the largest and best-known stocks account for most of the discussion, but there will be posts on micro-cap and OTC (over-the-counter) securities as well. r/StockMarket can add to an investor’s knowledge base, and provide some intriguing insights.
r/Stocks. Like r/StockMarket, r/Stocks offers more sober discussion. Despite the title, the subreddit does not focus solely on individual stocks. Discussions can center on major indices, specific countries or regions, or even the technical aspects of trading and investing.
r/Investing. As the name suggests, r/Investing takes a broader view, including posts on specific trading platforms, tax issues, equity/bond allocation, and macroeconomic factors. But there will be single-stock posts as well.
Like r/StockMarket, r/Investing aims to foster civil discussion: self-promotion, insults, and even “off-topic comments” are banned. Of course, like any subreddit, r/Investing still has a sense of humor: it is titled “Lose money with friends!”
r/CryptoCurrency. As the name suggests, r/CryptoCurrency features discussion of all things crypto, ranging from individual coins to exchanges to NFTs (non-fungible tokens).
With 5.7 million users, r/CryptoCurrency is one of the most popular subreddits of any kind. But given crypto’s ongoing problems with market manipulation and spam, its exceptionally detailed rules are no surprise.
r/PennyStocks. As the name suggests, this subreddit focuses solely on penny stocks. Like the U.S. Securities and Exchange Commission, “penny stock” here is defined as any stock with a share price below $5. Unsurprisingly, that price cap leads to discussions covering mostly speculative stocks with big potential upside — and significant downside risk as well.
r/Superstonk. r/Superstonk itself shows the power of Reddit investing and Reddit stocks. The subreddit deals only with GameStop stock (the “superstonk” in the name). Posts can be “tangentially related” to GME — but posters must explain why the post connects back to the stock.
As of this writing, r/Superstonk has 842,000 members. That’s the kind of community that Reddit, and Reddit investing, can create.