Using Reddit as a tool for your investments
A few weeks ago one of my favorite podcasts Aktieuniverset [Stock Universe] discussed using Reddit as a tool for picking stocks with a guest in the studio. The guest was unable to convey the message in a good way so I decided to send them a tweet sharing my willingness to help explain.
The tweet received some traction and I ended up promising another user that if nothing else, the least I could do was make a post about it on my website breaking it down. So here we are!
The Basics: Reddit explained
Just like many retail investors use Seeking Alpha, Yahoo Finance, and Twitter I have been using Reddit to discuss various companies and stocks for many many years. In fact, I use Reddit for a lot of things and I have to admit that I might also be slightly addicted. I created my account over 8 years ago - even before I started getting into stocks and I happen to own and moderate a large subreddit on the site called /r/witcher- It revolves around the fantasy universe of The Witcher - A Polish book series by Andrzej Sapkowski, popularized by the wonderful video game series from CD PROJEKT RED and by the Netflix produced original TV series hit of 2019. The subreddit sees around 1.5 to 2 million unique visitors per month.
Subreddits
Reddit consists of a bunch of specifically themed sub-sites. These are called subreddits and are akin to a real-world bulletin board - Anyone can make a post and it will gain exposure based on how many people like it. If a post receives more upvotes than downvotes it will slowly make its way to the top of the board. If you open a post you will find a comment thread inside in which people can discuss it.
What is interesting about Reddit especially is that you can subscribe to various subreddits and in that way make a custom feed of everything that interests you. If visiting the site while not being logged in you will simply be met with a feed called 'popular' showing the most actively engaged with content on the site.
This formation or structure is important to understand if you are trying and tackle Reddit as an investment tool as a complete newcomer to the site. There are many stock and investment-related subreddits and I will be showing a few examples in this write-up.
The most notorious investment related subreddit called /r/wallstreetbetshas gained a lot of traction as of late as they are behind the whole GameStop saga.
Why is this important?
There are a few positives and negatives of this structure and they are important to keep in mind when exploring the site and drawing conclusions from what you read or even when engaging in discussions yourself.
All subreddits are user moderated - which means they are all managed differently. Some are very tightly controlled with strict rules and active moderation. Others are more relaxed or even just less serious. Many of the largest investment-related subreddits like /r/stocks, /r/investing, and /r/stockmarket are run by very dedicated teams which are enforcing rules such as 'no self-promotion' and no 'pump and dumps’. You are also prohibited from editing the headline of a link/news article if posting to one of these subreddits for example.
Besides the obvious - like not putting all your trust in a random user on the internet, it is also great to have an understanding of what general community you are engaging with if you are to make use of what is being shared there.
The downsides of concentrated communities
As these communities or subreddits are specific and/or interest-based you will likely find many useful topics there to engage with or read. However, you should be aware of a phenomenon called the "Echo Chamber". Given the tight concentration of subjects in these communities, you will easily be able to seek out information that reinforces existing views without encountering opposing views. This can result in confirmation bias and really means you need to take everything you read on Reddit with a grain of salt. A subreddit like /r/apple makes for a great example of this - But there are many.
At its worst the media echo chamber phenomenon can lead to conspiracies and bigotry...
So... How do I take advantage of this?
Reddit is known as 'The front page of the Internet and for good reason too. Given the size, openness and global nature of the site Reddit is often at the forefront of what is happening in the world. I get a large part of non-local news from the site and so what I do and what I have been doing for the past 8 years is to subscribe to and actively follow the subjects that interest me. When I became a Microsoft (MSFT) investor 7 years ago I rounded up the largest Microsoft-related subreddits and added them to my feed. That allowed me to stay up to date on every event, news article, or general sentiment about the company and I believe it has worked well in my favor.
What I also like to do is create what is called a "Multi-Reddit". That means you can mix the feed of several subreddits into one and browse it as if they were one. The simplest way of doing this is by adding the '+' symbol to the URL of a subreddit you are already browsing. It would look something like this: /r/bitcoin+ethereum - Here creating one feed for someone interested in reading about the two most popular cryptocurrencies. You can however also make a permanent multi-Reddit, name it and even share it with others if you are logged in. You can do this using the option 'Add to Custom Feed'.
An example of where I would click if I were to add /r/witcher to a gaming related multi-reddit for example.
The possibilities of this feature are endless - You could create a 'one-stop shop' type of feed for all the news and discussions of the companies you invest in or maybe one for keeping an eye on the competitors in a certain field etc. I have one called 'Investing' that includes /r/teslainvestorsclub, /r/SPCE, /r/dividends, and a long list of others. I use it frequently.
Spotting trends
The best part of Reddit however, by far, is its ability to help you spot trends. This is also naturally the hardest part and the one that will require you to pay attention and follow a subject closely. /r/pennystocks makes for a great example of this. In the time I have been lurking around in this subreddit (maybe for the last year or so) I have already seen a handful of stocks absolutely skyrocket after only a few weeks of being the hot topic on the particular subreddit. I noticed the same thing after having joined /r/wallstreetbets for having a laugh over people going all in on risky investments. Here the user /u/deepfuckingvalue posted regular updates on his investment in GameStop (GME) and when people slowly realized he was onto something they followed along... And well... The rest is now history.
In the early days of December 2020, I saw Zomedica (ZOM) slowly gain more and more buzz on the subreddit /r/pennystocks and within long it went off.
I often do not get around putting my money in these assets myself - mainly because I have a hard time jumping on short-term trends as a long-term investor. But I cannot help but pride myself a little that GME, PACB, BB, and many other unbelievably lucrative investments already had a place on my brokerage shortlist before they took off. Of course, I do this instead of kicking myself over being too conservative to actually buy into them - but regardless it has taught me a lot and prepared me for a future where I might one day start dabbling with these types of investments as well. It has also allowed me to help friends and other fellow Redditors asking for advice on short-term stock picks.
These trends can be found everywhere on Reddit - Not just on investment-related subreddits. Recently a change in discourse in the tech community and subreddits like /r/android have led me to venture into a new consumer technology investment opportunity; Namely, Xiaomi (1810) - a company I have long admired and now finally feel confident enough to invest my money into as I have seen perception on this company slowly change on Reddit and other online communities. Much more on that in an upcoming post here on this site.
Within this category of spotting trends, I would be remiss not to mention that a dedicated subreddit does exist for precisely this sort of thing: /r/hot_stocks is a closed-off subreddit (meaning that only the owner is able to post) created by user u/lucacha after his posts in other investing subreddits saw so much traction that it became necessary to make his own. He created a bot that scrapes sites like Reddit for mentions of certain stocks and ranks them in order over how much they are being talked about. It is a really interesting tool and a powerful one if you understand how to use it right.
An image from this week’s Hot Stocks. WoW is Week over Week. There is even an entire website dedicated to the service now.
Learning from others
Another key aspect of any online forum is learning from others. When I first started to think about creating a passive income for myself through dividend investing I had very little knowledge in many areas of the subject. /r/dividends became a huge help to me in this period of research. Not only did I find inspiration for specific stock picks, reading through the posts and comments of users’ suggestions to one another, but I also figured out my strategy by taking the aspects I best liked from other seasoned dividend investors in the community. So-called 'DD'-posts (Due Diligence) are also a great source of finding digestible and understandable breakdowns of a company's revenue, management, and opportunities ahead.
It was here I learned what a dividend Aristocrat and King were - Here I learned that chasing yield is usually a short-sighted trap and much much more. Reddit is open to everyone and within the rules set by the moderators of a given subreddit, you can ask about anything or discuss whatever you like with different kinds of people all over the world. Now again - It is important to remember that everything you read should only lead you towards you doing your own research and not be taken as the end of all truth.
Ending remarks
Now I understand if this 'guide' was not exactly what you had expected. I think there is a misconception out there, ever since the GameStop/Wallstreetbets saga, that Reddit has somehow managed to find a way to make anyone who uses the platform a trading genius of sorts. This is not the case. It is however one of the most powerful tools I have ever come across to stay updated on the latest trends, get new information and perspectives on anything you can imagine as well as give you the opportunity to ask stupid questions or share your thoughts with others.
I do contribute a large part of my success in picking stocks to this site - I just never really thought about it before the investment world started paying attention to the site and when traditional media covered these recent shenanigans. Reddit has been part of the way I research and learn for a long time and will likely keep helping me in finding new opportunities in the future.
Disclaimer: I am not a financial advisor, the opinions expressed in this article are entirely my own – always invest at your own risk.
