Kevin O’Leary, co-founder of ETF O’Shares, told CNBC on Wednesday that he had started trading alongside users of Reddit’s WallStreetBets forum in hopes of better understanding the online community that has played a key role in the recent compression of GameStop.
In an interview with “Squawk Box”, O’Leary said he put $ 10,000 into an account with the popular Robinhood brokerage app and said he joined Reddit to “ride with the herd.”
“There’s a brand new sheriff in town and they’re not stupid,” said O’Leary, also an investor on “Shark Tank”. O’Leary added that he was impressed by the sophistication some Reddit users have exhibited, saying they “aren’t as dumb as everyone thinks.”
“They look for situations that are over-shorted and have thin floats. They organize themselves the day before and they go after the stocks and in most cases they bring them up,” he said. , adding that he made 5% on Tuesday “on a crazy drug company that I had never heard of.”
In a personal experience, O’Leary said he compared the performance of his daily trading account to the returns he generates through a robot advisor, which uses computers to manage money. “I’m watching my robo-advisor fight me right now. The point is, it’s a fantastic democratization,” and an important lesson in the risks of trading versus investing long-term in a diversified portfolio, he said. -he adds.
O’Leary’s comments on Wednesday came a day before the House Financial Services Committee held a hearing focused on the GameStop trading mania that erupted in late January.
The video game retailer’s shares soared as retail traders flocking to sites like Reddit rushed to buy the heavy bet against the shares. Hedge funds such as Melvin Capital, which had bypassed the name, have sought to minimize their losses by buying shares at higher prices, adding to GameStop’s upward momentum. With those two forces in play, GameStop went from less than $ 20 a share in early January to an intraday high of $ 483 on January 28, a whopping increase of over 2,300%. The stock has since fallen below $ 50.
At the height of the frenetic activity, brokerage houses such as Robinhood temporarily imposed trading restrictions on GameStop and other heavily bypassed stocks. Lawmakers are sure to ask Robinhood CEO Vlad Tenev about this at Thursday’s hearing. Melvin Capital CEO Gabriel Plotkin, Reddit CEO Steve Huffman, and Keith Gill, a Reddit user and YouTuber who helped spark the GameStop craze are also ready to participate in the hearing.
O’Leary said he believes most of the people who criticize brokers like Robinhood and Reddit users lack firsthand experience with either platform. That’s why he decided to start using both.
In doing so, O’Leary expects to show newcomers to the stock market that it’s hard to make money in day trading and that the best way to build wealth over time is to invest. long-term. “I think education is powerful and important,” he said.
O’Leary made a fortune selling an educational software company he founded in his basement in 1986 at Mattel for $ 4.2 billion in 1999. Later hestarted O’Shares, an investment company that provides exchange-traded funds for long-term wealth management.
Disclosure: CNBC owns the exclusive rights to off-grid cable toShark Tank», On which Kevin O’Leary is co-host.
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