When you think about stock markets, your mind might first be drawn to Wall Street, and well-seasoned professionals in thousand-dollar suits sitting in corner offices in Manhattan. For a long time, this image was pretty accurate. However, free trading apps, and online trading in general, have opened up investing to the masses. And now, investors digitally congregating on Reddit and elsewhere are having a huge impact on markets. Financial expert Jude Offiah is going to dig into the dynamic changes occurring in the world of investing.
“Large numbers of small investors have been able to impact markets for some time now,” Jude Offiah says. “With the emergence of online investing communities, like Wall Street Bets on Reddit, small investors can ban together and have a huge impact on markets.”
In recent weeks, some professional investors have decried the influence of smaller investors working together on Reddit to influence stock prices, among other things. Some analysts and pundits, however, argue that increased democratization of investing will level the playing field.
“At times, we’ve seen the interests of smaller investors put at odds with larger institutional investors,” Jude Offiah says. “When competing interests emerge, tensions tend to flair. Whatever your personal opinions, it’s important to be aware of how developments can impact markets and your portfolio.”
Are these developments good or bad? Jude Offiah believes the more important question is simply how emerging trends impact markets.
“As an investor, the most important thing isn’t whether social media’s influence on markets is good or bad,” Jude Offiah argues, “but instead investors should ask ‘are the trends big enough to influence prices?’ If so, you need to take that into account.”
Jude Offiah believes that investors should step back and look at emerging trends, such as large geopolitical events, social media trends, and other factors not found on financial sheets. Reddit and other communities could have a huge impact on markets.
“If you watch social media sites closely, you may observe emerging trends that could influence markets,” Jude Offiah says. “For example, a group of investors on Reddit may be arguing that a certain stock is undervalued, and if you look at their analyses, their arguments may have a lot of weight.”
So what do you do when you see emerging trends? Jude Offiah argues you need to take them into account when investing.
“If a large number of online investors are buying into the argument that short sellers were overly aggressive, you need to be cautious when short selling stocks yourself,” Jude Offiah says. “Likewise, you might invest in a stock that many believe is undervalued, but keep in mind that investing strategies derived from social media trends are inherently high risk. You might win big, but you might lose as well.”