By now, you have all probably heard about the Gamestop saga. Not yet? Well, very briefly here is what happened – A big crowd of amateur stock traders got together on Reddit’s r/WallStreetBets forum and decided that they are all going to go all in and buy Gamestop’s shares on the NYSE (New York Stock Exchange) and squeeze the institutional short sellers. Just as they had planned, hedge funds with short positions on Gamestop got squeezed out and made huge losses as they watched the stock price go up from about $20 in early January 2021 to about $350 by the end of the month. It corrected to about $50 in early Feb 2021 and has since rallied to $175.
Retail investors have never had the money or the ability to organise themselves this way to form a ‘cartel’ of sorts and cause a price impact on stocks. Never in our living memory before! But all of that changed. Retail investors now have Reddit, Quora, and all kinds of other forums to discuss investments, convince others about their stock picks, and rally people around. Keith Gill, a man working in the marketing team of an insurance company, drove the Gamestop Reddit mania.
Only a decade ago, this would have been impossible! Stock gurus, from the most unlikely places and backgrounds, are becoming ‘influencers’ in these forums.
While a lot more action is happening in this space in the west, India and Indian investors are not far behind. Reddit’s r/IndianStockMarket and r/DalaStreetBets subreddits have about 16,000 followers together. Deepak Sahney, a little known self-built wealth advisor, has close to 75,000 followers on Twitter who come after him with questions like these.
Valuepickr has Ben Graham’s disciples (of value investing) dissecting every business to ‘separate the wheat from the chaff’. Traderji, TradingQ&A, Rakesh-Jhunjhunwala forum and BSE2NSE are just some of the many, many public forums where stock picks are discussed, ideas are exchanged, and investment gurus are born. Some of these discussions are rich and invigorating while some others are just rolling lumps of snows waiting to cause a Gamestop-like avalanche.
The astute investor in you is asking, how do we keep a tab on all of this? How do we stay updated and catch the wave before it rises? Find the next Gamestop before it happens so we can ride it? This is precisely the question that a lot of different hedge funds are trying to answer. Thinknum alternative data, a data analytics company, received a lot of phone calls the week after Gamestop frenzy, requesting them to dig into Reddit and provide sentiment analysis of the different stocks being discussed. They started monitoring r/WallStreetBets hourly and providing reports to hedge funds. We have come a long way from the time when retail investors were keeping track of what the hedge funds were buying, to the time when hedge funds are keeping track of what the retail investors are buying!
At EveryFin, we run a web scraping analytics program to understand the velocity of some of these discussions happening in the forums in India. To just give you one example, we track the number of posts, the number of likes, the number of views of posts of all the stocks being discussed in ValuePickr. Our algorithm goes into ValuePickr’s website and tracks all of this data on a regular basis and sends us an update, so we know what stocks the forum is talking about, what it likes, and what it is most interested in. Essentially, spying on what is going on on the web!
Here is a quick look at the results it generated this week.
Through this, we have discovered some stocks that we would never have found on our own. We have discovered some up-and-coming ‘stock gurus’ who are influencing the buy/sell behaviours of the other boarders on these forums. And that in itself is powerful.
But we are not stopping there. We are now trying to teach our algorithm to decide for itself which of these discussions are positive & which aren’t; Which of these are most likely to lead to a sustainable stock price increase in the short to mid-term based on past patterns and which are just going to end up as online banters. And that won’t just be powerful, that will be a bazooka!