Meet the Forum Founder Who Kills Hedge Funds
WallStreetBets is a name that was often seen on Twitter (TWTR) last year, gaining popularity during the pandemic after social media-fueled trading caused wild swings in the market.
The Reddit board helped spark a meme stock phenomenon, with the likes of GameStop (GME) and AMC (AMC), among others, seeing a dramatic increase in value. Reddit users WallStreetBets and short sellers on Wall Street have been sparring and battling each other for months, causing short pressure on various stocks.
A short squeeze forces those betting against the stock to buy in order to avoid bigger losses, sending the stock price much higher.
It has left Wall Street institutions such as hedge fund Melvin Capital sitting on billions of dollars in losses, underscoring the new power and clout of retail investors in the market.
The New York-based investment management firm closed its short position on GameStop on January 27, ending the month with $8bn (£6bn) in assets under management, down from $12.5bn with which she had started the year.
“WallStreetBets was already on exponential growth, 2020 just accelerated what was clearly written on the wall,” founder Jaime Rogozinski told Yahoo Finance in an exclusive interview.
“All of a sudden you have people hearing about WallStreetBets for the first time because of GameStop. And they say what is WSB? GameStop prices, okay, that’s what they do.
“And that’s the categorization he receives as a crowd of individuals, they may just outnumber an institution when it comes to pushing a price where they miss the point.
Read more: 2021: The year memes humiliated hedge funds
“What WSB doesn’t drive up the price of a stock isn’t WallStreetBets. They’re here to learn, have fun, take risks and try to make money.
He added: “WallStreetBets gets its name from saying, hey, if there’s any reviews, check your reviews at the door, because it’s called WallStreet…Betting. We’re speculating, we’re having fun. It’s is a casino; let’s be creative and enjoy it together.
Shares of Bed, Bath and Beyond (BBBY), Express (EXPR) and Koss (KOSS), all of which were heavily shorted by the Wall Street elite, were also caught up in the retail frenzy , as well as Sundial Growers (SNDL) and Blackberry (BB).
Watch: Founder of Wallstreetbets subreddit advises calm in the face of stock market volatility
Speaking about his background, Rogozinski said he has always been enterprising, leaning towards technology and economics.
“That’s what I studied in undergrad, and I studied finance, but I always started businesses all through high school and out of college. I was just a taker natural hazard and a go-getter.
Rogozinski, now 40, lost his job in 2008 due to the financial crisis, then found a new one at a bank doing work related to technology and finance.
“I’ve decided, never again… I’m going to find a way to have a comfortable nest egg so I don’t have to go through unemployment. And that’s when I started playing with the stock market,” he said.
“I was looking to take what little extra money I had, a few thousand a month that I could afford to risk, which was enough for me to say you can take advantage of a lot of money and I started to learn different instruments like stock options and things of that nature.
“I was also trying to find an area online that I could learn from, like a group of people that we can just share ideas with, for this type of high-risk, high-reward trading style.”
The entrepreneur first created WallStreetBets in 2012, as a platform for people who wanted to share, invest and learn more. He has since written a book titled WallStreetBets: How Baby Boomers Created the World’s Largest Casino for Millennials.
“People just started showing up organically, and it was a nice combination of knowledgeable people who are there to share, and people who are like-minded. They were young, which means they can afford the risk, without addicts.
“And then you have professionals or knowledgeable people who are having fun with this concept.”
A decade later, WallStreetBets subscriber numbers continued to grow, and as the coronavirus pandemic arrived, it left people stuck at home with more free time.
“The pandemic has really fueled the retail stock market, people at home, getting their government checks, they’re bored, looking for ways to make money.”
READ MORE: Amateur investors chase profits during the pandemic
Dramatic price changes and the surge of DIY investors have many wondering if this phenomenon is about to repeat itself in the future and if retail traders have found a new voice, or even as much just a new source of power.
Rogozinski said: “All of a sudden, [retail investors] say we have a voice in that market too, we can actually be seen as a player to the point where people actually care about what we have to say or do – which is incredibly empowering for individuals, for little people.”
But he thinks AMC and GameStop’s increases, as seen in early 2021, won’t be replicated in the same way in the future.
“It is unlikely that we will see this again, mainly because the market itself is wise. Many of the maneuvers that have been done to make GameStop work have already been plugged in. It wasn’t just people buying these stocks, it was much more than that.
“There were a lot more participants who had dealt with the size of the company, the short float that was out there, that was helped by what was happening in the news with the various hedge funds.”
He added: “The market is now putting up defenses against this type of volatility, but that’s great because now this inefficiency has been corrected. The market is slightly better and sturdier and more durable than it was before GameStop.
“But there’s going to be another one, absolutely, there’s going to be another one, it’s not going to be the same. Maybe it will cause the stock price to go up. Who knows. But it won’t make the same maneuver with gamma compressions and everything else.”
Rogozinski, who has now let go of the reins and is no longer the subreddit’s moderator, added that WSB as a concept continues to grow, including outside of the subreddit.
There are social media accounts on a variety of platforms, with different flavors of WSB, whether geographic, like KoreaStreetBets or IndiaStreetBets, as well as specific instruments, like SilverStreetBets or SatoshiStreetBets for cryptocurrencies.
READ MORE: Hargreaves Lansdown boosted by rise in young people trading stocks
Rogozinski is still dedicated to helping and growing communities that want to learn more about investing and stocks, with a new push into financial entertainment.
“I’m doing a play to provide this brand of financial entertainment. So it can be in the form of podcasts and websites to digest news and for commentary, opinion, TV shows, reality shows about traders,” he said.
“There is now this massive audience that is hungry for financial news and information, but in the way they like to ingest it. You don’t need to know the price/earnings ratio of the company to do these things; you can literally look at the graph or think the CEO is eccentric and you could be just as right.
He is also expected to speak at a Masterclass on Saturday with XTB. This will include a trading strategy for equities such as the telltale signs of a rally and a correction in equities, as well as risk management strategies for professional traders.
Looking to the future, he sees the lines between cryptocurrency and stocks continuing to merge, as seen with ETFs and synthetic stocks surrounding the blockchain.
“I see things going in this direction, and in the crypto world in particular. It’s so new that the number of inefficiencies to exploit are endless. It’s so easy to find inefficiencies and exploit them right now.
