By Akane Otani
March 21, 2021
One January afternoon, Tesla Inc. Chief Executive Elon Musk sent out an 11-character tweet: “Gamestonk!!”
His Twitter followers sprung into action.
GameStop Corp. shares surged more than 150% overnight. The next day, analysts threw up their hands. Nothing apart from Mr. Musk’s tweet—which included a link to Reddit’s WallStreetBets forum—could explain why the stock soared.
Mr. Musk isn’t alone in moving stocks by simply tweeting. Public figures as varied as the Tesla executive, venture capitalist Chamath Palihapitiya, Barstool Sports founder David Portnoy and fund manager Cathie Wood have collectively amassed hundreds of millions of followers online. Many of their fans are individual investors who take their comments on the market as gospel.
The notion of a market influencer isn’t new. Prior generations were enraptured by star investors like Bill Miller, Peter Lynch and Warren Buffett. They soaked up shareholder letters and book recommendations, eager to glean insights into how to routinely beat the markets. And they sought to replicate the investment strategies of star investors in their own portfolios, poring over company earnings reports and debt-to-equity ratios. The growth in popularity of business news on cable television and the internet in recent decades gave rise to another wave of influential figures.
Today’s gurus aren’t defined by Wall Street bona fides. (Ms. Wood, who cut her teeth at firms like the Capital Group and Jennison Associates, is an exception.) Many of today’s influencers have appealed to their followers precisely because of their irreverence and disdain for financial-industry norms. Their followers often profess they couldn’t care less about the depth of analysis behind a trade. If their icon is buying something, they will throw money at it, too.
Mr. Portnoy live-streamed himself buying stocks based off the letter tiles he blindly pulled out of a Scrabble bag. Mr. Palihapitiya bought $125,000 worth of call options on GameStop in January after telling his Twitter followers he would “throw a few 100 k’s” at whatever they persuaded him to buy. The rapper Snoop Dogg was credited with sending the price of cryptocurrency dogecoin soaring after he tweeted an altered version of one of his album covers, showing himself with a “doge” head.
“It doesn’t matter what your investment skills are,” said Ben Carlson, director of institutional asset management at Ritholtz Wealth Management. “Because of social media, it’s never been easier to become a promoter.”
It is no accident that many of the most prominent stock influencers have embraced antiestablishment views. They have directed their anger at parties ranging from the Securities and Exchange Commission to CNBC to hedge funds and billionaires, often to the delight of their followers.
Mr. Palihapitiya, for instance, said Reddit traders pulled off an “insane, crazy, baller” feat after their bets on GameStop pummeled hedge fund Melvin Capital Management. In response, praise for Mr. Palihapitiya exploded on Reddit’s WallStreetBets forum. “We should support his spac’s next lol,” one WallStreetBets user wrote, making a reference to Mr. Palihapitiya’s special-purpose acquisition companies.
Mr. Musk has joked that “it would be awesome” if the SEC investigated his tweets on dogecoin. And Mr. Portnoy publicly feuded with billionaire hedge fund owner Steven A. Cohen in late January when brokerages restricted trading in GameStop shares, accusing him of being involved with the curbs in an effort to “save hedge funds at the cost of ordinary people.” Mr. Cohen denied the allegations.
In one sense, it isn’t surprising that such figures have become heroes to many individual investors, said Peter Atwater, an adjunct professor of economics at The College of William & Mary.
“There’s an enormous population that feels that they do not have any standing, and the pandemic only reinforced those perceptions,” he said. Many of today’s stock influencers have succeeded in growing their followings precisely because they have conveyed the image that they, too, are outsiders, Mr. Atwater added.
The reality often falls short, though.
Influencers like Mr. Palihapitiya and Mr. Musk are billionaires, Mr. Carlson said. “They are ‘the man.’ ”
If there is one obvious benefit to the rise of social-media influencers, it is that they have helped stir up interest in investing, especially among younger individuals who otherwise may not have made the jump into the market. Sign-ups for new accounts at brokerages like E*Trade Financial Corp., Fidelity Investments and of course, Robinhood Markets Inc., have soared during the past year.
In many cases, it has paid off to be in stocks this year. The S&P 500 has risen 4.2%, while the Dow Jones Industrial Average has advanced 6.6%. Both indexes are less than 2 percentage points away from records.
But the market’s wild ride has also shown that bets—especially in individual stocks—can backfire quickly. There is a danger in big personalities online wielding the influence they do over individual investors, said Nancy Tengler, chief investment officer of Laffer Tengler Investments.
GameStop, for instance, soared to a closing price of as high as $347.51 Jan. 27 before skidding into the $40s a few weeks after. (It has since recouped some of its losses, closing Friday at $200.27.)
“In between all of that, people get hurt,” Ms. Tengler said. And while a billionaire may be able to laugh off the losses, for the average individual, one wrong bet could have far more punishing consequences.
The SEC has said as much about the boom in interest in SPACs. They have been backed by a growing crowd of celebrities, including Shaquille O’Neal, Colin Kaepernick, Alex Rodriguez and Serena Williams. Amid the hype, the SEC issued a sober reminder earlier this month.
“It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment,” the SEC said in an investor alert.
The big question many money managers have now is how long the current generation of influencers will hold sway over their fans.
Bona fide fund managers like Ms. Wood, of ARK Investment Management LLC, have a greater chance of standing the test of time, said Rick Lear, founder and managing partner of Lear Investment Management, simply because they have a goal of delivering long-term value to investors—not just capitalizing on the buzz of the moment.
“What really appeals to the public is making money, and that’s what she’s done. She’s been in all the right places,” said Mr. Lear.
As for the rest of the crowd, Mr. Lear is less sure.
“I think it can persist as long as the market is going up,” Mr. Lear said. “As soon as things turn, it’s no longer fun.”
Write to Akane Otani at email@example.com
Dow Jones & Company, Inc.