In recent years, this type of investment advice has seemed to be on the rise. Wall Street companies, once synonymous with trading or stock picking, tout their index funds. The so-called robo-advisers, who promise to manage money for a small fraction of what a human professional costs, have attracted billions. Last year Richard Thaler, who helped design define-and-forget 401 (k) options that improved the retirement accounts of millions of people, won the Nobel Prize.
So how does Wallstreetbets fit in? The answer may simply be that US investors have ID, and that ID needs to find an outlet. The forum was founded in 2012 by Jaime Rogozinski, an entrepreneur living in Mexico, who wanted a place where savvy investors could exchange advice on high-risk, high-return, short-term trading strategies. “All of the talk was about long-term investing and index funds,” Rogozinski told Money. “Every time I went to Reddit and posted a comment or a question, I was berated for not being a good investor.”
Rogozinski, who is “not a big fan of memes,” insists he created Wallstreetbets as a serious forum for learning. But whatever its intention, the site quickly attracted an unruly mix of trolls and pranksters, including, notoriously, Martin Shkreli. The former hedge fund manager, who is currently serving a seven-year prison sentence for securities fraud, has previously hosted a question-and-answer session on the subreddit and has been appointed WSB moderator.
Shkreli continues to be one of the site’s favorite topics, along with Tesla founder Elon Musk known as “Papa Elon”. The couple are regularly mocked (or celebrated, the line isn’t always clear) with memes and other jokes.
But WSB is best known as a place where users announce their bets in the market, which often center on so-called memes stocks, like Tesla, stocks that have transcended their role as financial instruments and become some kind of economic joke. The biggest and most daring of these bets, like Cao’s, are known as “YOLO bets”. The winners boast of spending their newly acquired fortune on yachts and ‘tendies’ – tender chickens, jokingly considered to be the ultimate luxury lifestyle. Losers are laughed at, often in foul and offensive language, but also with a certain sense of camaraderie. After all, the losers are the ones who provide the most entertainment.
The mix of swagger and nihilism that permeates Wallstreetbets makes it difficult to say how much money is really at stake. One of the most notorious incidents to take place at the site involved a Canadian user named fscomeau. He shared a video in which he played out his million dollar legacy. The video is now viewed by the WSB community as an elaborate fake.
Cao’s story is also remarkable. He started visiting Wallstreetbets because “literally every other Internet forum is putting me to sleep” and quickly started posting about his own transactions. He claims to have started investing with only $ 700, which he turned into $ 8,000 of betting on election results on an online gambling site. He says he then increased his earnings with cryptocurrency trades before turning to stock options. Even after his losses on Facebook, he claims he has over $ 300,000 left.
Cao freely admits that all of this can be hard to believe. Money has examined images of Cao’s brokerage accounts, including those that had not yet been posted online, and repeatedly asked him about the details of his transactions. However, in the age of Photoshop, his claims are impossible to really verify.
While it is difficult to know which Wallstreetbets transactions are genuine, the dozens of posts showing pedestrian losses of a few hundred or a few thousand dollars suggest that a good chunk of them are in fact real.
“The majority [of users] are really unsophisticated, “says one of the moderators of the site calling itself” Chainsaw Vasectomy “when contacted via Reddit direct message.” I think some brokers need to be more careful with how their clients “invest”.
At least one academic day trading study suggests that about eight in 10 investors end up losing money within six months. These losses only get worse when investors use instruments like options to increase returns, as many do on WSB.
For his part, Rogozinski declines all responsibility for what he considers to be bad judgment on the part of investors. “If you have the money, you’re probably old enough to understand the consequences and deal with them,” he says.
In Cao’s case, the giant losses he published seem to have clarified the consequences of Wallstreetbets’ investing style. In the post announcing his losses, he admitted that he would not take the same risks in the future. “I will always stick around but play with a significantly smaller portion of the cake,” Cao wrote. “Basically, I stop while I’m in front.”
Fixed: An earlier version of this story had an error in the name of Dennis Cao.