Founder of Wallstreetbets on the state of meme stocks: “The institutions have woken up”
Wallstreetbets founder Jaime Rogozinski joins Yahoo Finance to recap the year that has been spent on meme stocks and where this style of trading may be headed in the future.
– Jared, we can’t talk about meme stocks without talking about the Wallstreetbets Reddit forum. And for that, we now have with us the founder of Wallstreetbets, Jaime Rogozinski. Jaime, thank you so much for joining us.
I wanted to start with the moves we saw today in some of the stocks that were initially popularized on Wallstreetbets earlier this year. And you heard Jared break it down for us – GameStop down 14%, AMC down 15%, Bed Bath & Beyond down 6 and 1/2%. These stocks have been volatile throughout the year.
But this particular cohort of meme stocks has fallen further over the past month and three months after massive rallies earlier this year. Does this mean that the unprecedented participation of traders this year is starting to fade? Or is something else going on here?
Jaime ROGOZINSKY: I mean, stocks are still rising. Like, what was it, 900%, 600%? They are unknown. I don’t know what’s happening in the markets today. I hadn’t seen it until I saw those numbers a minute ago.
But you are right that they are very volatile. And if they are very volatile, it almost implies that there is still a lot of retail activity. Retail can be buying, or retail can be selling. It is this activity that manifests as volatility.
So I’m not convinced. I don’t think retail is going away any time soon. I don’t think you’re going to see another GameStop type short squeeze because I think the market has caught on to that. But I think the participants, the retailers that are in the market, are here to stay.
– And that’s exactly where I was going with my next question here. How persistent is this phenomenon, as we saw a lot of retail investors making money earlier in the year? Many of these investors suffered losses.
Some accounts have been deleted. And we know that with traders who are just getting started in the game, it takes years to really master things. To what extent do you think this retail phenomenon will stay in the markets and be a force perhaps not just next year, but for years to come?
Jaime ROGOZINSKY: OK, except they’re not investors. Retail participants are here to trade. They are here to use the market in a different way.
Yes, of course, they all want to make money. But you’d be hard pressed to say they behave like an investor, meaning that long-term horizon, diversified, dividend-earning, compounding, blah, blah, blah. They can also do that too.
But a lot of these retailers – when people refer to these retail participants, they’re more often referring to these meme stocks. They are not afraid of risk. They are not afraid to take risks, to find inefficiencies that they can exploit to their advantage. So I don’t necessarily know that behavior though, you know, they invested in GameStop and now they’ve been left with the bag.
They never were – well, GameStop, I think that might be an exception. But all the others like AMC and Bed Bath & Beyond and [? Car ?] and Avis or whatever, these are just opportunities to try and make short term money from them. And sometimes it works. And sometimes that’s not the case.
And so does everyone in the market, whether it’s Warren Buffett, who lost money on the airlines during the pandemic, to high-frequency computers or those trading algorithms to technical traders who draw on-screen graphics. Everyone makes and loses money, which is to say, retailers are not immune to this same component of market participation.
– And I hear you. You’re talking about those same stocks, those retail traders, in a different sense than necessarily buy-and-hold investors. And I understand that.
I want to talk and get your reaction to the forum space you created because we have seen a lot of third party infiltration. It may have been hedge funds. You know you get the amount of money that’s invested here, the amount of money that can be earned, you’re going to expect outside actors to invade the space and try to come in and maybe get work their way into different news memes themselves and try to control the narrative.
I’m just wondering, how faithful do you think the forums are to their original identity? Or have they evolved in some way? And what are these means?
Jaime ROGOZINSKY: I mean, it’s hard. There are just a lot of ways to read this, aren’t there? So you have these hedge funds that are now paying attention to what’s going on. They install an extra desk in their office.
They say your job isn’t to monitor social media so we know what’s going on, right? Like, it’s the relevance of recognizing this retail space as something that matters. This is an extra checkbox before shorting a stock to ensure it is not talked about on Wallstreetbets.
If we’re talking about something more nefarious, like, let’s go to this forum and promote that particular stock or manipulate the herd into making it a meme stock, it’s been happening forever, long before GameStop. And there are a lot of different protections in place. But hey, it’s also a really hard thing to do because this retail space isn’t just in this forum alone. He expanded beyond that.
And you have instances on things like Instagram and TikTok and Twitter. And you also have chat rooms on Discord and chat rooms on Telegram and Facebook. And even then, you have the more granular level approach where it’s like we just want to talk about silver street or silver, so silver street betting, or crypto or korean stocks.
So you will have some more segmented pockets. And so it’s a little bit more difficult to just infiltrate it and infect it like a virus and say, well, now we’ve been able to influence this band to our liking. So overall I think the system is itself – the social media system itself is impervious to that kind of influence.
– Well, speaking of…you were talking earlier about finding inefficiencies that can be exploited. When Wallstreetbets, GameStop, and AMC really had their moment earlier this year, short interest was one of those common characteristics between those stocks that became popular. Do you think this will continue to be a feature these merchants are looking for in the future? Or are there other commonalities that you see as something these traders are looking for to target their next stock picks on Wallstreetbets and beyond?
Jaime ROGOZINSKY: I mean, there are two things to say. First, it will continue to be a feature they seek out in case they come across another one. But the market has shrunk. The short-term interest on GameStop was certainly a very big part of that, as was the stock option profile around it, as there was more sophisticated gaming using so-called “gamma compression.”
And so there were a lot of components that made GameStop possible. I think there will be people who are constantly looking to make sure there is no opportunity. But the institutions have shrunk. I think companies are now going to be really scared of having a company that’s more than 100% overdrawn. I think that makes them an instant target, so I doubt we’ll see many examples of that.
And I will [INAUDIBLE]– and we’ve already seen a number of cases where something becomes a meme stock, and the options dealers, the market makers, they raise the price of their premium, which makes those maneuvers much more difficult. In other words, the market got it. It’s a bit more protected against this maneuver.
Now, going back to that second point, finding inefficiencies isn’t just about doing a little compression. GameStop was an epic example of exploited inefficiency. But there have been different kinds of exploits long before GameStop, and they will continue to happen afterwards in ways the market is not yet prepared for.
And so they will take the market by storm. Remember, there are millions and millions of people testing the beta market, basically. They look for bugs like software.
And as soon as they find it, they share it on social media. They improve it. They exploit it. They make money, then the market gets wise. They solve this problem and they move on to the next one.
– All right, we’ll leave it at that for now. Thank you very much, Jaime Rogozinski, founder of Wallstreetbets.