“Used to be one of these robinhood/wsb daytraders, during 2018 it completely killed the atmosphere after seeing red for 3 months straight. Entire communities disbanded and friend groups dissolved. Any extended drawdown will absolutely kill the sentiment around investing but eventually new people come back in to fill the space because someone on tiktok or reddit will continue to make money. Its a vicious cycle and I believe it will cause more harm than good to my generation, with respect to investing, over the long term.”
This comment was in response to our latest YouTube clip from the podcast this weekend, A New Era of Investing and Financial Advice, and I think he makes an important point. Assuming it’s a he. I don’t know.
Forget about the long-term harm for a minute. The real concept worth understanding from this is how important community is. If you’re observing some sort of bizarre activity in the stock market that leaves you scratching your head – like a little-known software company trading up 70% on the day with no recent headlines about it, the answer to the riddle is most likely to be “community.” Community is going to explain most things that would be otherwise inexplicable.
Community is such a powerful driver of activity because of how desperate we are to connect with one another. Humans are social animals. We need to speak and be heard. We crave togetherness. We yearn to belong. This proclivity toward tribalism is written into our DNA, from a time before recorded time, when belonging literally meant the difference between life and death. Our ancestors depended on this trait. Nature selected for it. The genes of their descendants carry it.
Once upon a time, we all woke up, reported for work and spent the day among anywhere from five to five hundred people down at the job site, at the plant, in the office, at the factory, in a store, wherever. Somewhere. With some people. And then 5 o’clock rolled around and the day was done. The whistle blew and Fred Flintstone slid down the back of a brontosaurus.
Who yells “Quittin’ time!” now? There’s no whistle. If your company is running on Slack, it’s probable that the Calamari app tells you it’s time to log off. You look around. There’s no one near you. Maybe you’re even home already. Many of the people you’ve spent the day interacting with aren’t physically in the same city or state. The Zooms are terse and businesslike. The email exchanges are as short and sweet as they can be so as not to waste each others’ time. It’s efficient. It’s inhuman. You need real interaction. Something to be a part of. A team to play on and to root for. A story that keeps the teammates aligned. A set of outsiders or bad guys that the whole team can agree to hate. Together.
When we’re all craving a community because of the new nature of work, the default place we’re going to find one is online. We may start out agreeing with just one or two things a given community says that it’s about. That’s enough to start reporting for duty each day or night. To “see” our tribe. It’s only a matter of time before we begin adopting the beliefs and language of the tribe we’ve become a part of. Or, something repulses us from being a part of the group and we are back to looking for a new one. Most of this is happening subconsciously. We’re not saying out loud “I need a group of internet friends with similar interests and obsessions!” but that’s what’s actually happening.
The pandemic took this decades-long trend of distributed workforces, isolated people and online identity creation and accelerated it into warp speed.
There have always been stock message boards, but never like this before. There have always been forums for traders to chat, but never like this before. There have always been investing clubs, but never like this before. Everything is bigger now. The stakes are so much higher now.
Melvin Capital, the hedge fund that was blown up shorting GameStop and other stocks that these communities decided to rally around, was just the first and most obvious example of how high the stakes actually are. Steve Cohen’s Point 72 hedge fund lost $500 million on his investment in Melvin Capital in the first half of this year. He’s added to the investment and continues to back the fund so we’ll see how things really end sometime in the future.
Wall Street is not going to be underestimating the power of these communities anymore. Now they’ll incorporate them into their thinking. Eventually, they’ll figure out how to violate them, siphoning out every trading dollar from their accounts by hook or by crook, but that’s a blog post for another day.
I know a guy who gets on a microphone every weekday afternoon at 3pm and barks trading ideas at his subscribers as the market lurches toward the close. He says each week he can say less and less to the subs because they seem to really want talk with each other. It’s the same guys in the same trading chat room day after day. It’s a ritual. No one is questioning whether this guy’s market calls or options trades actually pan out. The subs take some trades and ignore the rest. They’re not auditing him, they just like the environment he’s created for them to live inside of for an hour. There are regulars. They have their own in-jokes. Norm and Cliff are on a virtual stool, lamenting those Crowdstrike calls they sold too early, or the Tesla weeklies that blew them up last week. They celebrate each other’s victories and call bullshit on each other’s ideas in a jocular, collegial way. It’s their community. There are tens of thousands of these trader chat rooms attracting Norms and Cliffs from all over America and beyond. Maybe hundreds of thousands? It costs nothing to start one up other than the desire to give up that much of your time and the ability to attract a few dozen subs.
Here’s the punchline – the guy I’m telling you about, talking them into the market close on the microphone each day – has never worked a day in his life on Wall Street or at a hedge fund or an asset management firm or even at a prop shop. If I told you what his job was prior to starting the room, you wouldn’t believe me. Also, I like him, so…
We’re in the early stages of building the communities around our digital media content the same way we’ve done so with our blogs during the previous decade. Millions of page views a month has turned into millions of downloads and minutes watched of our podcasts and videos. How? Community. Consistency. It becomes part of the fanbase’s regular routine. Every Wednesday, tens of thousands of young people – investors, advisors, analysts, traders – know that the latest episode of Animal Spirits with Michael and Ben will be waiting for them on the podcast app of their choice. We’ve been hiring employees out of this listenership. They know exactly what we’re doing – the perfect pool of talent for the future of our workforce. Because they’re already in the community. Every Tuesday, the community knows to expect the live broadcast of What Are Your Thoughts at 5:30pm eastern. We almost never miss a week. Consistency. The community gets to live chat with us and each other during the show. Community. Current clients are watching and listening. Future clients are watching and listening. This is the formula.
My friend Ian Schwartzman (Joe Budden Network) says podcast listening is a ritual. You deliver the same quality product about the same familiar subjects with the same comforting voices and you become a part of people’s lives. Part of their ritual. “It’s Saturday morning and on Saturday morning I make coffee and listen to the Joe Budden show to catch up with Joe, Ish, Ice, Parks – you know, all my buddies.” You aren’t friends with them in real life, but you feel like you are.
There are many versions of this in the stock market. They are growing larger, with audiences into the millions. Scaling. The longer the audience spends together, the easier it is for their attitudes and ideas to gel into something that can be directed. Something that can be channeled into a tidal wave. January 6th.
If you’re building one of these communities, hopefully, you’re trying your best to give them helpful information, inspiration and positive reinforcement. Because you could also go the other way and get a big response by telling people the world is going to hell and they need to keep tuning in as things get worse and worse. Pessimism can be a highly effective community-building tactic. I saw this firsthand in Vancouver ten years ago with Peter Schiff and Doug Casey telling a live audience of thousands to start planning for the final crash. Final, as in, find a remote parcel of farmland to hide out at, a loaded shotgun resting at the front door. Subs were definitely subbing after that powwow.
I would write two paragraphs about the Barstool Sports online trading community led by Dave Portnoy here, but I don’t think it’s necessary. You get what’s going on there.
Robinhood communities. Reddit communities (and sub-reddit on top of sub-reddit communities). Message board communities. Chat room communities. Social media communities. Fanbase communities. We’ve come a long way from the Beardstown Ladies investing club.
If you see something in the markets these days that appears to make very little sense on the surface, or to be unsustainable given how incongruent it is with all of your prior ideas about the right way to invest, chances are there’s a community somewhere behind this activity. Feeding it and feeding upon it simultaneously. Tread carefully and try not to kick the beehive. The bees are highly invested emotionally. In many cases, their inclusion is literally all they have.