Late last year, Reddit user PhantomPumpkin began building a simulated portfolio. Over a three-week period, he invested $10,000 in play money into any stock talked about positively on the subreddit r/investing.
Is this a viable portfolio building strategy for the long term? Absolutely not. But it is incredibly interesting. In the anonymous, Wild West world that is Reddit, how would the communal Internet fare against the efficiency of the global stock market?
To find out, I updated his portfolio with current prices as of today, one year later.
Let's get right to it. How'd he do?
Over that three-week period, 30 individual stocks were virtually purchased. Each investment represented $10,000 in play money. Because of what I can only determine to be rounding errors, the total investment ended up totaling $288,713.54.
Today, the portfolio is worth $404,015.97. That's a 39.9% return in roughly one year. Not bad at all.
But it's not enough to just accept this near 40% return without benchmarking it against alternative parking spots for your money. Forty percent sounds great, unless you could have returned 60% somewhere else.
Compared with the S&P 500 and the Dow Jones Industrial Average, this portfolio performed quite well. The S&P is up 27% over the past year, and the Dow is up 23%. The Russell 2000 though is up 35%. The Reddit portfolio still wins, but only slightly.
Taking a deeper dive
Overall, the portfolio saw 10 stocks lose money, while 29 made money, and one was a push.
Of the 30 investments, seven returned greater than 100%! Leading the way was Acadia Pharmaceuticals (ACAD 0.36%), returning 359%, followed by MannKind, returning 136% and AcelRX Pharmaceuticals (ACRX 2.50%) returning 122%.
Only one investment lost more than 50% of its value: OXiGENE, which lost 52%.
Notice a pattern emerging? Redditors, for whatever reason, seem to really like pharmaceutical and biotech companies. Other big winners -- Pitney Bowes (PBI +2.73%), Seagate Technologies, and First Solar (FSLR +1.08%) -- while not drug or bio companies, are high-risk, high-reward companies that bet on the future of technology.
To see the portfolio, I've uploaded the spreadsheet for viewing here.
A better approach
With only 30 stocks in this portfolio, and with such a heavy weighting toward technology, biology, and pharmaceuticals, is 39.9% really a good return? My instinct tells me no.
In my judgment, this risk profile here far exceeds that of the Russell 2000, and absolutely the S&P or Dow Jones Industrials. And it far exceeds what the risk profile for most investors should be as well!
So should you begin checking r/investing everyday for the next big investment opportunity? Absolutely not!
The key to investing is doing your own homework, understanding what companies actually do, what makes them successful today and tomorrow, and then investing for the very long term.
Don't put your nest egg, your future, your children's future, at such undue risk based on advice of the anonymous masses.
In the game of investing, slow and steady wins the race. A Reddit-driven portfolio is a shortcut you should avoid.
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