By Caitlin McCabe, Gunjan Banerji and Mischa Frankl-Duval
A new army of social media-enabled day traders is helping push
stocks to records and turning companies into market sensations.
As trading by individual investors boomed during the coronavirus
pandemic, so has the popularity of online communities where they
gather. Platforms including TikTok, Twitter, YouTube, Reddit,
Instagram, Facebook and messaging platform Discord have become the
new Wall Street trading desks. Individual investors gather to talk
about hot stocks like Tesla Inc., boast of gains and commiserate
about losses.
These investors do more than just talk, though. They piggyback
on each others' ideas and trades, helping fuel the momentum that
has propelled some companies to triple-digit or bigger gains in
2020.
"People fall in love with [some stocks] and they get in these
echo chambers, where they are all shouting, like, 'We're going to
buy Tesla forever!'" said Blake Bassett, a 31-year-old delivery
driver who began trading several years ago. "People post all day
like it's a football game."
And while online discussions among investors aren't necessarily
new -- in the late 1990s internet chat rooms dedicated to stocks
helped sustain the tech-stock bubble -- social media is more
widespread than ever before. That, meanwhile, has coincided with an
industrywide move to commission-free trading, while most brokerages
have made it easier to dabble in risky instruments like
options.
Shares of Chinese electric-vehicle maker NIO Inc. are an
example. The stock has received some of the most enduring interest
from individual investors, joining the ranks of dozens of others,
including fuel-cell company Plug Power Inc. and Tesla.
Though hardly a household name, NIO is among the most searched
stocks on Google. Video snippets under the tag #nio have
accumulated more than 35 million views on the social-media platform
TikTok, with many young investors encouraging others to buy shares
of the company or questioning if it is the next Tesla. And the buzz
is alive on Twitter, where it was mentioned nearly 6,800 times on a
single day in November, up from about 100 mentions a day at the
start of 2020.
The excitement online has coincided with a rush of trading
activity. NIO has been the second-most actively traded stock in the
U.S. market over the past year, with about 111 million shares
changing hands on average each day, according to Dow Jones Market
Data as of Thursday. That only trailed trading in Apple Inc., which
has a market valuation more than 20 times that of NIO.
NIO has been a more popular trade than even the SPDR S&P 500
Exchange-Traded Fund Trust, one of the biggest ETFs tracking the
broad stock-market index. Options volume tied to NIO has surged,
with more than one-tenth of all activity recently stemming from
individual investors, according to Trade Alert data.
Fetching under $4 at the beginning of 2020, NIO's U.S.-traded
American depositary receipts closed at $62.70 Monday, a record. Its
market value of about $98 billion is well above that of General
Motors Co.
The chatter has persisted into the new year. NIO was the
second-most-traded stock Monday on the retail-trading platform
operated by Fidelity Investments Inc., trailing only Tesla. And the
trend was mirrored on Webull Financial LLC's platform last week.
Part of the excitement stemmed from the unexpected Democratic
Senate wins in Georgia, which some investors believe will give
President-elect Joe Biden a greater shot at achieving his
clean-energy initiatives.
The company's annual "NIO Day" on Saturday, during which the
electric-vehicle maker unveiled its fourth production model, had
also prompted enthusiasm among individual investors leading up to
the event.
The online buzz has enticed traders to pile in. Gavin Mayo, a
19-year-old student at the University of North Carolina at Chapel
Hill, says he typically spends anywhere from one to five hours a
day scrolling TikTok, YouTube and other platforms for ideas on what
to trade while churning out video snippets to more than 60,000 of
his TikTok followers.
"If there's some really good stocks out there -- usually people
are talking about it," said Mr. Mayo, adding that he recently sold
100 shares of NIO for about a $1,600 profit after they rallied more
quickly than he expected. Now, he's staying away from shares of
electric-vehicle makers because he thinks they have run up too far.
He recently sold his position in Tesla, too. That stock has surged
748% in the past 12 months, a rally that has intensified over the
past week, making the company worth more than Facebook Inc.
Social media is what drew Mr. Mayo to stocks in the first place
at around age 13, when he says he saw millionaire penny-stock
trader Timothy Sykes's account while browsing Instagram. Mr. Sykes
has boasted of making a full-time job out of trading stocks and
posted about the $35,000 gold Rolex watch he had bought.
Not everyone is swept up by the hype, even if they, too, are
part of the social-media stock-market debate.
Mr. Bassett has become skeptical of NIO's recent share-price
moves. In early December, he turned to a popular stock-trading
group on Facebook: "Do people even look into stocks anymore?" he
asked the group's more than 150,000 members. "NIO is outright
overvalued."
Dozens of comments flooded in. One trader said he had taken his
profits and run. Another member of the Facebook group suggested NIO
will "take over" the electric-car industry. A third offered a much
simpler explanation: Never mind technicals, the member said, "We're
in a bull run until we're not."
Determining the degree to which online chatter drives
share-price movement can be difficult to quantify. But some
researchers have found individual investors typically make the
biggest impact on smaller, more speculative stocks. Based on an
analysis that he conducted in August of Robinhood Markets Inc.
customers, Nick Maggiulli, chief operating officer for Ritholtz
Wealth Management, said users appeared to largely be chasing NIO's
stock gains -- rather than driving them -- as it was climbing last
summer.
Though few expect this year to see as much market volatility as
2020, online interest in investing has only grown. As of January,
posts tied to #stockmarket had garnered over 800 million views on
TikTok, more than triple the figure in June. Reddit's infamous
WallStreetBets forum has more than doubled in subscribers since the
start of 2020. StockTwits, a social network focused on investing
and trading, has seen its user numbers more than triple over the
past year. Recently, Tesla and NIO have generated some of the most
chatter.
Some new investors are drawn by the camaraderie that the
platforms offer. Georgina Allen, who is 26, waded into stock and
options trading after two of her friends convinced her to join a
Discord server dedicated to trading. While she was furloughed from
her job during the pandemic, the federal government worker turned
her attention to markets.
She often followed a routine: She would wake up at 6 a.m.,
assess premarket stock moves and look over her option positions.
When markets opened, she would jump on a Zoom call with other
members of her Discord group.
"We actually would join like a Zoom call, and we would
live-trade together. And that was pretty much my life," said Ms.
Allen, who is now back at work.
Members of the channel would discuss articles or the
conversation among CNBC pundits and delve into company balance
sheets. Like many other young investors, Ms. Allen bought shares of
NIO after reading about the company online. Impressed by its
financials -- and keen not to miss out on gains she saw others reap
-- she bought the shares at about $14 apiece, she said. They are
now 348% higher.
"Just seeing other people's success, normal people like me, and
not like institutional traders, was really motivating," Ms. Allen
said.
Some industry veterans warn social-media posts can inadvertently
send too rosy a message about beginner trading. That can draw other
newbies in.
"Everybody only posts the wins," said Anthony Denier, chief
executive of Webull, a brokerage that is popular with younger
investors. "Nobody sends a selfie on Instagram when they just woke
up after a bender. It's when they're having their first cocktail
for the night and they're all done up. It's the same for day
traders" posting their profits and losses.
--Caitlin Ostroff contributed to this article.
Write to Caitlin McCabe at caitlin.mccabe@wsj.com, Gunjan
Banerji at Gunjan.Banerji@wsj.com and Mischa Frankl-Duval at
Mischa.Frankl-Duval@wsj.com
(END) Dow Jones Newswires
January 11, 2021 17:26 ET (22:26 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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