Unless you've been out of the country or living in a cave, it's been hard to escape the short-squeeze phenomenon that has played out on the U.S. public markets. The ongoing battle between hedge funds and the investors on the WallStreetBets subreddit has made headlines. For a select group of traders, it's been a windfall. But wherever there are winners, there are also losers.
On this clip from Motley Fool Live recorded on Jan. 28, "The Wrap" host Jason Hall and Fool.com contributor Dan Caplinger discussed the ugly truth.
Jason Hall: So Flying Snow, another Jason, people with the best names come on here, I just want to say. Jason follows me on Twitter and we've interacted a little bit about everything that's been going on. I've been steadfast that its retail investors with this whole short squeeze thing, WallStreetBets thing, It's going to be retail investors that end up taking the most harm.
At the end, Jason says, "Okay, I humbly submit. Don't chase noise, rumors, and chat rooms, follow your own thesis." I want to read this because it's bedrock principles to me. "Follow your own thesis, don't chase noise, rumors, and chat rooms. Focus on the long-term growth, stable values."
It's one thing to speculate, folks. Companies like Nano-X (NNOX 7.57%) that are zero revenue and trying to make a business, but you see prospects. It's another thing to gamble. That's the bottom line. As much as this feels different, this WallStreetBets thing, the subreddit, it feels different. It's like Walt Disney (DIS 3.51%).
Let me explain. Walt Disney, people that are bearish on Walt Disney are saying they are bearish on Walt Disney because cable's dying. It doesn't matter that cable's dying, they own the content. People want the content.
Reddit is just another way to deliver content to people. It feels different. But you can fall into a subreddit that's the equivalent of a penny stock pump-and-dump newsletter, just as quick as 10 years ago, you could have gotten on an email list for penny-stock newsletters.
It is a way for people to send a lot of information to a lot of people all at one time, sometimes for purposes that are specifically going to benefit them and potentially harm other people. This has essentially been a great big pump-and-dump.
The fact that they were doing it in public, the fact that it was all about trading and driving these, and they made the enemy, the Wall Street hedge funds. Those guys are still flying first class, and it's the people that followed in late that used their rent money to buy GameStop (GME 6.81%) at $400. The thought they were still going to be able to get in on this, those are the people that are going to be hurt. That's the bottom line.
Dan Caplinger: Jason, I just got to add one thing.
Jason Hall: Please.
Dan Caplinger: The chat room thing. The chat room is only as good or bad as the people that are in the chat.
Jason Hall: There you go.
Dan Caplinger: We've got a great chat room here in the form of the premium discussion boards that all of our members have access to. The conversations there are totally different from what you see in this WallStreetBets or something like that. Don't think that people can't get together and have a good investment experience, they can. It just requires the right mindset. When you have that shared mindset, it can work wonders. You can get all kinds of good stuff out of it. Don't knock that. Just make sure you don't focus on the wrong thing.