Reddit Stock Picks: Delete the App, Your Portfolio Will Thank You
Investing has never been more readily accessible than today. Now, almost anyone can open up an investing account, with often no minimum investment.
Social media has caused an investing frenzy, pushing the idea that you can become a millionaire overnight.
Reddit has quickly become one of the most popular (and scandalous).
With thousands of investors posting to the r/WallStreetBets forum daily with over 2 million subscribers, it seems like a great place to get free stock market advice, right?
Sorry to burst your bubble, but not always.
Although it seems like an excellent idea, there are a few significant issues with Reddit stock tips that you must know before hopping on the "to the moon" spaceship.
What are Reddit Stock Picks?
Reddit stock tips are pieces of advice provided in a Reddit forum, such as r/WallStreetBets or r/Stock_Picks by anyone on the internet who is interested in investing.
In these forums, members vent about their devastating losses and brag about their risky wins.
The members of these Reddit communities cause the stock market to fluctuate by "hyping" up a particular company, convincing members to put their money into that stock, and then make the stock move up.
The hype over a particular stock encourages retail traders to buy the stock with the knowledge that its share price will likely rise.
Within the r/WallStreetBets forum, members often post viral content called 'meme stocks' to grab attention and start conversations to send certain stocks "to the moon."
Why are reddit stock picks a bad idea?
Reddit stock tips and advice are problematic because they can be created and circulated by literally anyone on the internet, including complete investing beginners who do not have the education required to be giving advice.
5 Times Reddit Tried to Send a Stock to The Moon
Often, members' efforts of fluctuating a particular stock do work, and a stock is sent “to the moon,” which means that its value increases drastically and quickly.
Let’s look at 5 times that Reddit tried to send a stock skyrocketing, and their implications.
The GameStop short squeeze of 2021 was perhaps one of the most infamous in the last decade, rocking the foundations of the US stock market.
The now infamous surge started early this year on January 11th of 2021 when the company announced that they were bringing in a new team of board of directors, sending the stock up by 13%.
Although, days later, GameStop rose to a whopping 134% because of the hype circulated about the video game company on r/WallStreetBets, and the general hostility towards financial institutions.
Investors following the Reddit forum bought up GameStop stocks, and short-sellers had to buy shares to cover their billion dollar losses.
In situations like GameStop, very few people win and many people lose due to riding the rocketship.
A similar case to GameStop happened with BlackBerry in 2020.
Last year, BlackBerry’s stock was around $6. But when it looked like the pandemic was ending, there was a massive dump of tech stocks, including BlackBerry.
Investors in the r/WallStreetBets forum started hyping up the stock, sending it soaring to the moon at an astounding 341% earlier this year.
The Redditor's idea was to pump up the price as high as they could and then send it crashing back down, which inevitably happened.
BlackBerry stock crashed back down to 57% over the week, which was a nightmare for late investors, with many of them losing money yet again.
3. AMC Entertainment Holdings Inc.
The feeling of hostility against large financial institutions among Redditor’s was responsible for the surgance of AMC Entertainment Holdings stock as well.
Redditor’s viewed it as a chance to “fight back” against the hedge funds on Wall Street, sending AMC’s stock from $2 to $75.
This sort of “pump and dump” activity is unsustainable and causes a lot of damage to the average retail investor.
4. Cleveland-Cliffs Inc.
ClevelandCliffs Inc. is an integrated steel and iron ore company, which is a vastly different industry than the previously discussed companies.
CLF’s stock is one of the most popular within r/WallStreetBets. Redditor’s are suggesting that there will be a short-squeeze in the near future.
However, with the short-squeeze mentality, you may as well buy a lottery ticket because your chances at winning are just about the same.
Are you starting to see a recurring theme here? These “pump and dumps” are wildly unsustainable and lead to a lot of loss, and few wins.
5. Tilray Inc.
This Canadian medical cannabis producer has been the latest coordinated social media target.
This photo is an example from r/WallStreetBets of an average investor who listened to the social hype, bought, and lost.
Earlier this year, shares of Tilray rose by 50%, bringing their gain up to more than 670%.
Why are Reddit Stock Tips Dangerous?
Reddit stock tips can be incredibly dangerous to the average investor, and especially so for investing beginners for several reasons.
Stocks are often randomly selected, so the stock often lacks the fundamentals required for a good investment.
Dogecoin is a key example. This coin was randomly selected because of the ‘meme’ culture attached to it.
The issue with randomly selected stocks is that there is usually little to no research behind it, therefore, it is incredibly risky.
Not Everyone Wins
Everyone can’t win in the Reddit forum game, and chances are that you, or others, will get burned in the process.
Keep in mind that you always hear about the two or three success stories, but never about the thousands of terrible losses.
If a stock needs to be pumped to make you money then it’s not a stock you should consider investing in.
Stocks, when invested correctly, should fluctuate very little, or at least not as often, therefore giving you a more sustainable return on your investment in that stock.
Many Redditor’s don’t realize this, but this activity can be illegal.
The malicious intent of Reddit users banding together to manipulate a stock is considered illegal if the intention is to artificially fluctuate the stock market to see a financial gain for themselves.
Advice from Uneducated Investors
Financial advice should only be given by financial professionals.
As mentioned earlier, the vast majority of the forum writers do not have the education or legitimate experience to give financial advice.
If you are to take advice from any platform or app, you must ensure that it is backed by professionals in their field who can offer honest, sustainable advice for achieving financial freedom.
What Can I Use Instead of Reddit as a Beginner Investor?
Now that we have laid the foundation for the importance of taking stock market advice from professionals, let’s talk about Crux Investor, the platform that gives you one curated stock recommendation per month, for a stress-free investing experience.
The best part is that their team is entirely composed of professional analysts, who are industry veterans.
They’re not your average Joe sharing meme content on a Reddit forum; they understand stocks and know what investments you should make to have a sustainable portfolio.
The team identifies the single best stock to bring to their community, unlike Reddit, which will erratically bring you a ton of different options with no research behind it.
For less than a dollar per day, you can get professional, honest advice from industry analysts who know what they’re doing.
Say goodbye to gambling with your money like you’re in a Vegas casino, and say hello to sustainable, profitable investing.
Give Crux Investor a try today, your portfolio will thank you.