At The Motley Fool, we champion long-term, buy-and-hold investing. We encourage investors to learn about the companies they're considering investing in and to only buy when they're confident that the company has a competitive long-term advantage.
Making a quick buck isn't on our list of priorities, and we strongly believe that trading with a view to maximizing your profit quickly can backfire fast.
That being said, we're happy to see that investors with more experience were more likely to buy r/wallstreetbets stocks because they believed in the companies.
Whether we agree with that assessment isn't nearly as important as encouraging people to base their investing decisions on sound principles. So we're happy to see that more than half of investors with six years or more of investing experience believed in the companies they invested in.
Most respondents made money on r/wallstreetbets stocks
A good 66.37% of those who bought meme stocks made money, while 14.22% lost money and 11.80% broke even. The remaining 7.61% aren't yet sure how they did.
Those who most commonly reported losing money by buying meme stocks were those with one year of investing experience or less.
To be clear, it's possible to profit by buying overpriced shares or banking on a short squeeze -- but it's a risky prospect.
(Note: Because we were focused on understanding how well investors understood what was going on, and not whether joining the short squeeze was a good idea, we didn't ask how much money respondents made or lost.)
Did Redditors understand what happened?
The members of r/wallstreetbets knew what they were doing when they started the GameStop frenzy -- engineering a short squeeze requires a good amount of market knowledge.
But what came next was unexpected. Many brokerages restricted trading on some of those meme stocks. GameStop was especially volatile, which means lots of investors had to watch their brokerage balances jump up and down without being able to do anything about it.
And our respondents weren't very happy about it.
- 58.05% of our respondents think that brokerages restricted trading so they could manipulate the market, instead of as a way of preventing brokerages from collapsing.
- Similarly, 72.52% agree that the big guys -- like hedge funds and brokerage platforms -- manipulated the market to their advantage.
- Only 27.48% of our survey respondents felt that those Redditors didn't understand the rules of the game and that hedge funds and brokerages were behaving just fine.
The fallout from these trading restrictions is still being sorted out. But it's clear that investors aren't putting much faith in hedge funds and brokerages.
We aren't here to pass judgment on how hedge funds or brokerages did their jobs. But lots of people losing faith in the system and being suspicious of other participants in the market is concerning. This is a trend that we'll keep an eye on going into the future.
An important lesson learned
It's amazing how a single subreddit caused such an uproar in the stock market -- and caused so many investors to make or lose a substantial sum of money overnight.
What can the average investor learn from this?
First, that shorting stocks is risky. Betting that a company will increasingly lose value means potentially losing money. Only investors who understand the ins and outs of shorting stocks should dabble in it.
Next, chasing meme stocks isn't a great idea, either. A lot of the people who made money on GameStop had it in their portfolios before its share price began to soar. But specifically going after meme stocks generally means chasing volatile companies whose share prices may be inflated beyond what they're actually worth.
While many ordinary investors emerged from the GameStop frenzy richer or unscathed, a lot of people also got hurt.
A better approach to investing is to seek out quality stocks that offer a lot of value and have strong long-term growth potential. Buying and holding these stocks for years is a safer way to make money in the market, even if it's less exciting than chasing meme stocks and watching them rise and fall.
Methodology
The Motley Fool distributed this survey via Pollfish to 1,509 American adults who buy and sell stocks on February 11, 2020.
Respondents were 46% female and 54% male. Age breakdown was approximately 15% 18–24, 23% 25–34, 35% 35–44, 13% 45–54, and 13% over 54.
Some percentages may not total to 100% due to rounding.
Pollfish employs organic random device engagement sampling, a method that recruits respondents through a randomized invitation process across various digital platforms. This technique helps to minimize selection bias and ensure a diverse participant pool.
