‘Like a drug’: Redditors’ Stock Mania fueled by High Gambling

Much has been made about the deeper meanings of GameStop and this week’s market mania: how it reflects the profound inequalities in American society, how it call against the Wall Street institution, or how it’s even the beginning of an extreme online populist movement ready to take power.

But what the moral story about the inalienable right of Redditors to pump up meme shares as a way to redistribute wealth has been obscured lately: it is that many of these mostly young men, who do little during the pandemic had, teamed up for the pure, unadulterated rush of gambling and hit it big again and again.

Encouraged by Robinhood’s addictive day-to-day gameplay and conjured up by like-minded Redditors on WallStreetBets, these traders rejected the boring, long-term view of the passive-investing crowd. Instead, many people are chasing the dopamine climax to do everything and quickly get rich on increasingly absurd nostalgia stocks from the 1990s – all while giving the collective middle finger to Wall Street pros and their valuations.

Granted, this democratization of the markets – which is seen as a fun and easy way for millennials to make a fortune – has led to some stellar gains. Yet there is a fear that the liberating camaraderie, built on taking bigger and bigger high-risk ventures into generous, foreign stocks, is fueling a recklessness towards investments, which will ultimately leave most with less money and no more. .

“It’s a lot like a drug,” said Kelly Mothner, a licensed clinical psychologist in Hermosa Beach, California, who specializes in gambling and addiction. ‘It’s big, it’s strong and it’s powerful and you want more of it. Its excitement creates a dopamine rush that makes people come to an impulsive impulse, with the idea that there is something great on the other side if they just stick to it. ‘

For example, when Robinhood sends confetti to app users who trade, it’s kind of slot machines, it’s so colorful and noisy, ‘Mothner said. “These little shocks feed the desire to keep going.”

Robinhood did not immediately respond to a request for comment.

Of course, there has always been a certain casino-like quality of investment. This is exactly the kind of criticism leveled at Robinhood on high finances: that when hedge funds with pedigrees risk everything and win, it’s smart to invest, but if ordinary investors reach a large number, it’s gambling.

Yet it’s hard to ignore the extreme this week and the way these retailers, ten months into the pandemic, are plowing a lot into a variety of obscure names for maximum rush and volatility. And it is no coincidence that the gambling craze in financial markets arose after the pandemic shutdown sport and the thriving business of online sports betting.

Read more: In 11 hours of pure mania, 100% rallies appeared everywhere

“What we saw when the sports stopped in March was like a petri dish for this,” said Ed Miller, a poker author and co-founder of Deck Prism Sports. ‘There is definitely a gambling power, for lack of a better term, that when certain outlets are cut off, they are transferred back to others. I think it’s clear that the markets have taken it. ”

These forces came into play in GameStop this week. Shares, which fell to $ 2.80 in April, have risen slowly and steadily over the past few months as users on r / wallstreetbets, the ominous and meme-driven Reddit stock tips and speculative trading forum, began to gather around a long bet. that the mall seller of video game chips is actually deeply undervalued.

Before long, however, the basics deteriorated. Last week, the WallStreetBets crowd launched a campaign to push GameStop shares higher after a critical tweet from well-known short seller Citron Research. Melvin Capital, who also bet on GameStop’s decline, soon stepped into the cross. GameStop, meanwhile, has risen to stratospheric heights.

Read more: How WallStreetBets shares GameStop to the moon

By the end of the week, Citron and Melvin both capitulated, which served as proof of the concept for WallStreetBets’ buy-and-never-sell mob strategy. According to data from GameStop’s astronomical 1.625% uptake to $ 325 per share, short sellers suffered nearly $ 20 billion in losses, according to financial analysis firm S3 Partners. Many of the WSB “degenerate”, as the users are called, are worried about the small fortune they made to push in the shorts.

The mania quickly spread to other meme stocks such as BlackBerry, AMC Entertainment and Express, which rose to highs each year. The increase in trading activity and the tremendous volatility it has caused has led Robinhood and other online brokers to curtail the purchases of some of the Reddit-driven names, which has angered Congress on both sides of the aisle and darker, conspiratorial motives sowed among WSB. users.

As the GameStop saga seeps into the public consciousness and the mainstream media begins to notice the seemingly incredible turn of events in one corner of the stock market, the focus is on trying to understand how it all happened and explain what it all is. mean.

Some experts have seen shades of the original Occupy Wall Street movement. Others see the episode as a symptom of the frustrations of the millions of not-nots created by late-stage capitalism in the US. Many people on WSB even consider themselves just populists who consider GameStop as their Rubicon and claim that they are willing to burn everything. to expose the hypocrisy of the 1%, the losses are condemned.

But trying to find a deeper meaning hides a basic and unmistakable fact: gambling is fun – and addictive, especially if you win. What’s more, forums like WallStreetBets provide a much-needed sense of community for young, lonely, and undoubtedly financially insecure brothers (and they are, after all, overwhelming men) during an endless shutdown.

“People are looking for social engagement and to be a part of something,” says Dan Egan, managing director of behavioral finance and investing for Robot Advisor Betterment. ‘It’s a very interesting participatory sport. You can make the prize move, you can help your team win. The ability to do that is very, very attractive. ”

If the stock market has become a game, apps like Robinhood are the arenas – and tickets are free. Robinhood had already been scrutinized for ‘gamifying’ trade. In addition to the confetti, members have a chance to get shares of companies like Apple if they can persuade a friend to sign up. A list of the 100 most popular shares of the app is published on the website.

All that is a fanfare is to make investing look more exciting than the advice on money that financial advisers usually come up with: diligently put a portion of your salary into index tracking funds each month and forget about the up and down markets.

Although the goal is to accumulate wealth over the course of a career of decades, it requires a certain discipline and a degree of financial stability that many ordinary Americans simply do not have. Long-term investment also lacks the lottery-like appeal of a stock like GameStop, which stands at 134% in one day.

“It’s not WallStreetInvestments, but WallStreetBets,” said Eric Mintz, co-portfolio manager at Eagle Asset Management. ‘There’s an armed mentality. Making a lot of money is a sexy idea. ”