For those unfamiliar with r / wallstreetbets, it's a strange place … to say the least. As you scroll through the most popular posts, you'll see members share their astronomical gains, devastating losses, and investment recommendations from WSB that go against conventional wisdom. That's because this subreddit isn't your typical investment forum. It's a place where both amateur and veteran investors can discuss extremely high risk strategies. They ignore the most basic rules of investing and make moves that make even the most die-hard investor cringe because … YOLO! While some see it as little more than high stakes gambling, others take signals and make huge profits.
From the very beginning, WSB has been a place for people to discuss high-risk trades and seemingly insane investment strategies without judgment or lectures. That means, of course, unless they relate to themselves. The forum's self-deprecating and sometimes mundane tone has become an important part of the community's culture. While some despise his disrespect and disrespect for traditional trading rules, no one can deny that WSB has played a significant role in recent stock trends.
What are WSB's investment strategies?
Instead of choosing well-known assets, WSB members throw caution and money to the wind in order to buy more volatile stocks. If you're new to the forum, don't even waste your breath discussing bonds or risk mitigation. Community members know how crazy this is and indulge in the madness of it all. And although it started as an obscure trading forum, WSB has grown into a virtual army with its own subculture and jargon. The numbers soared after the short squeeze on GameStop stock in January 2021, making it very popular. The whole phenomenon has brought the subreddit into the national spotlight, and some investors are starting to seek their investment advice from the WSB.
The r / wallstreetbets forum is a lot. All financial advisors agree: the subreddit is not a reliable source of investment advice. Still, members share their winnings every day and post the impressive "tendies" they've earned with their risky strategies.
What do brokers think of taking investment advice from WSB?
Any worthwhile financial advisor should advise you not to trust any investment advice you read online. This is doubly true if it comes from an online forum for inexperienced investors with a penchant for high risk investments. When I asked my broker for their opinion on their investment strategies, they compared it to trusting social media or tabloids for your news sources. And he's not wrong. Most of the time, advice from WSB involves more gambling than strategy.
But … you should seek advice from WSB here
Although their strategies are unorthodox and extremely risky, madness can have method. A recent study by two researchers from the Hasso Plattner Institute in Potsdam attempted to uncover the secret behind the success stories. While some members have suffered incredible losses, especially after the GameStop frenzy, the team may have found a way to decipher when to take investment advice from WSB and when to ignore it.
To find out how reliable the advice from WSB was, the German researchers created a portfolio based on the community's most popular stocks and the buy / sell advice provided by their members. And what they found was pretty amazing. With the 20 stocks selected from the subreddit's posts and discussions, the WSB portfolio outperformed the S&P500. In fact, it grew 200% in the last three years and a shocking 480% in the last year alone.
The crux of the matter lies in an investor's ability to distinguish reactive signals from proactive ones. The reactive signals come immediately after a significant price increase or decrease. Responding to these signals is how many of the "degenerate" of the subreddit have lost so much money. However, the proactive signals turned out to be quite profitable. So, if you know what buy / sell signals to look for, you can achieve murder.
The fine print
The convenience of technology has shown average Joe how easy it is to invest with custom investment apps and retail investments. However, you can't overlook the WSB community's YOLO approach to investing. Beginners often overlook this and see the community only as a way to get rich quick. Unfortunately, many only notice this when it is too late and they have lost everything. If you're not ready to lose it all, avoid WSB's investment advice.
However, if you want to make questionable decisions with large sums of money, you've come to the right place. Win, lose or tie, WSB will always support high-risk moves.