By Lee Sherman
In a series of events that felt not unlike an experienced gamer leveling up, on January 22nd, members of a Reddit subgroup called Wall Street Bets (r/wallstreetbets) caused the previously moribund GameStop stock to skyrocket in value 69 percent before automatically triggering a circuit breaker halt. The following Monday, January 25th, GameStop trading was halted nine times. The members of Wall Street Bets were simply doing what many more experienced investors had been doing for years, they were short selling the stock in order to make a huge profit.
As Wall Street Bets shows, today’s investment clubs bear little resemblance to the days when a few people might set up card tables at a local community center or meet in someone’s living room to discuss investing. Working at Internet scale, they are able to bid up the price and distort the value of a given stock, at least temporarily.
Typically, short selling is recommended only for experienced investors with a deep understanding of the companies they are bidding up. Investment clubs have value because they provide beginning investors with the ability to pool not only money but also their knowledge of individual stocks.
Yes, Wall Street Bets is clearly not your father’s investment club. While it is more of a forum where strong opinions dominate (this is the Internet after all) it has become hugely influential. In its simplest form an investment club is a group of people that have pooled their own money in order to invest. Often this gives them the ability to make much larger investments than they otherwise could alone or to participate in funding rounds of companies they would normally not have access to. Investment clubs meet regularly (both on and offline). What’s less obvious is that investment groups serve as a source of camaraderie and confidence for fledgling and experienced investors alike.
High net worth investors have been able to take advantage of investment clubs (sometimes called networks) for years. These groups, such as Tiger 21 or B Connect Club, offer an alternative to the arrangement you’d otherwise have with your financial planner. While they don’t manage money directly, they do offer guidance, access to investments, and networking. Some even allow financial advisors to participate. But membership in these clubs is exclusive, expensive, and often the wrong choice for the neophyte investor.
Online groups like Wall Street Bets and newsletters like Motley Fool Stock Advisor have democratized investing and, for many new investors, have become go-to destinations to learn about stocks. While their recommendations can be more speculative than those which you might receive from your financial advisor, they can play a major role in helping you expand your investing knowledge and that’s something to celebrate.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.