July 12, 2021 BARRON’S 21
inversely to cryptocurrencies, be-
cause their fans rotate from one to
the other as the momentum shifts.
“I don’t think it’s strictly a coinci-
dence that meme stocks roared back
to life after a significant correction
in Bitcoin and other cryptocurren-
cies,” he wrote.
Sosnick considers meme stocks
a “sector unto themselves,” one that
he segregates on his computer mon-
itor away from other stock tickers.
Indeed, Wall Street’s reaction to
the meme stock revolution has been
to isolate the parts of the market
that the pros deem irrational. Most
short sellers won’t touch the stocks,
and analysts are dropping coverage.
(For more on analysts throwing in
the towel, see page 23.)
But Wall Street can’t swat the
retail army away like cicadas, or
count on them disappearing for the
next 17 years. Stock trading has
permanently shifted. This year,
retail activity accounts for 24% of
equity volume, up from 15% in 2019.
Adherents to the new creed are not
passive observers willing to let Wall
Street manage the markets.
“What this really reflects is a
reversal of the trends that we saw
toward less and less engagement
with individual companies,” says
Joshua Mitts, a professor at Colum-
bia Law School specializing in secu-
rities markets. “Technology is
bringing the average investor closer
to the companies in which he or she
invests, and that’s just taking on
new and unpredictable forms.”
It is now changing the lives of
those who got in early and are still
riding the names higher.
Take Matt Kohrs, who had in-
vested in AMC Entertainment early.
He quit his job as a programmer in
New York in February, moved to
Philadelphia, and started streaming
stock analysis on YouTube for seven
hours a day.
With 350,000 YouTube follow-
ers, it’s paying the bills. With his
earnings from ads and from the
stock, Kohrs says he can pull down
roughly the same salary he made
before. But he also knows that rely-
ing on earnings from stocks like this
is nothing like a 9-to-5 job.
“The swings you get can defi-
nitely make you feel some sort of
way,” he says.
Companies are starting to react
more aggressively, too. They are
either embracing their new owners
or paying meme-ologists to under-
stand the emoji-filled language of
the new Wall Street so they can
ward them off or appease them.
AMC even canceled a proposed
equity raise this past week because
the company apparently didn’t like
the vibes it was getting from the
Reddit crowd. AMC has already
quintupled its share count over the
past year. CEO Adam Aron tweeted
that he had seen “many yes, many
no” reactions to his proposal to is-
sue 25 million more shares, so it will
be canceled instead of being pre-
sented for a vote at AMC’s annual
meeting later this month. The com-
pany did not respond to a question
on how it had polled shareholders.
Forget the boardroom. Corporate
policy is now being determined in
the chat room.
Big investors are spending more
time tracking social-media discus-
sions about stocks. Bank of America
found in a survey this year that
about 25% of institutions had al-
ready been tracking social-media
sentiment, but that about 40% are
interested in using it going forward.
In the past few months, Bank of
America, Morgan Stanley, and J.P.
Morgan have all produced reports
on how to trade around the retail
action, coming to somewhat differ-
ent conclusions.
There can be “alpha in the sig-
nal,” as Morgan Stanley put it, but
it can take some intense number-
crunching to get there. Not all
message-board chatter leads to sus-
tained price gains, of course, and
retail order flow cannot easily be
separated from institutional flow
without substantial data analysis.
For investors with the tools to pin-
point which stocks retail investors
are buying and which they are sell-
ing, J.P. Morgan suggests going long
on the 20% of stocks with the most
buying interest and short on the top
20% in selling interest.
For now, many of the institutions
buying data on social-media senti-
ment appear to be trying to reduce
their risks, as opposed to scouting
new opportunities, according to
Boris Spiwak of alternative data
firm Thinknum, which offers prod-
ucts that track social-media senti-
ment. “They see it as almost like
an insurance policy, to limit their
downside risks,” he says.
For retail traders, the method
isn’t always scientific. The action is
sustained by a community ethos.
And the force behind it is as much
emotional and moral as financial.
N
ew investors say they are
motivated by a desire to
prove themselves and punish
the old guard as much as by
profits. They learn from one an-
other about the market, sometimes
amplifying or debunking conspiracy
theories about Wall Street. Some
link the meme-stock movement to
continued mistrust of big financial
institutions stemming from the
2008 financial crisis.
“Wall Street brought our econ-
omy to its knees, and no one ever
got in trouble for it,” says the 26-
year-old Kohrs. “So, I think they
view this as not only can we make
money, but we can also make these
hedge funds on Wall Street pay.”
Claire Hirschberg is a 28-year-
old union organizer who bought
about $50 worth of GameStop
stock on Robinhood in January
after hearing about it from friends.
She liked the idea, but what really
got her excited about it was the
reaction of her father, a longtime
money manager. “He was so mad
I had bought GameStop and was
refusing to sell,” she says, laughing.
“And that just makes me want to
hold it forever.”
Just like old Wall Street has ritu-
als and codes, the new one does, too.
A new investment banking em-
ployee learns quickly that you don’t
wear a Ferragamo tie until after you
make associate. You never leave the
office until the managing director
does, and you don’t complain about
the hours. And the bad guys are the
regulators and Sen. Elizabeth War-
ren, and not in that order.
The new trading desk—the apps
that millions of retail traders now
use and the message boards where
they congregate—have unspoken
rules, too. Publicly acknowledging
financial losses is a valiant act, evi-
dence of internal fortitude and belief
in the group. You don’t take yourself
seriously and you don’t police lan-
guage. You are part of an army of
“apes” or “retards.” You hold
through the crashes, even if it
means you might lose everything.
And the bad guys are the short
sellers, the market makers, and the
Wall Street elites, in that order.
The group action is not just for
moral support. The trading strategy
“Tech-
nology is
bringing
the
average
investor
closer
to the
compa-
nies in
which
he or
she
invests.”
Joshua Mitts,
professor at
Columbia Law
School
WHENSTOCKS
BECOME‘STONKS’
New investors on online forums
like Reddit—where stocks are called
“stonks”—have driven supersize
gains in AMC Entertainment and
GameStop this year, despite a
recent dip. BlackBerry has also
been a beneficiary.
Source: FactSetAMC Entertainment Holdings / AMC
GameStop / GME
BlackBerry / BB
$80
$400
$30
60
300
350
25
40
250
20
20
150
15
50
100
200
10
5
0
0
0
J
J
J
F
F
F
M
M
M
A
A
A
M
M
M
J
J
J
J
J
J