When the Reddit crowd invaded the stock market with insensible ideas last year, it began a cycle of craziness never seen before. Stocks bordering on bankruptcy or some already in bankruptcy became the favorite of retail investors who had little prior knowledge of investing but were sucked into the phenomenon sweeping through the fringes of the stock market. By mid year, it was no longer a fringe crowd. Hedge funds began mimicking the bet made by the Reddit renegades. Gamestop, AMC, Hertz and Bitcoin all began to trade at levels unheard of, with no justification for the rise in their stock prices. Robinhood and Citadel, which enabled and executed most of these trades, booked huge profits from the flurry of activity. Big banks – Morgan Stanley, Schwab, Etrade also benefited from new accounts being opened and trading activity picking up significantly.

A year has gone by and where are those investors now? A lot of hedge funds cashed out, some hedge funds crashed out while most individual investors never sold and are now sitting on hefty losses. Many of the insiders of these companies also did really well and reaped good exit packages. Robinhood riding on a high, went IPO. Reddit, having been the staging ground, saw its valuation go to $10 billion from $3 billion. Cathie Wood, making her regular appearances on CNBC, saw her ARK fund rise in early 2021 and then sputter ending up a dismal performer.

Future Wealth’s View

There is a saying in Wall Street – “In a bull market, everyone is a great stock picker. It is in a bear market or a correction that the men are separated from the boys”. January 2022, did just that. Those who held onto ill-advised positions, got pummeled. Cathie Wood’s ARK investment became a shipwreck and the investors in the Robinhood platform robbed themselves in the rush to trade excessively stoked by FOMO – Fear Of Missing Out. Robinhood itself, after going public at $38, rocketing to $56, now trades at $15, burning all the investors who participated in the IPO and the employees who dreamt of retiring with a pina colada.

In the meantime, ever the sage – Warren Buffett, who turned 91 last year, had Berkshire Hathaway drop out of the top 100 list early in 2021, only to come roaring back amidst the carnage, to post returns well ahead of all the indexes. It will be fair to state that Reddit is not on the daily reading list for Warren Buffett. The real difference is that Warren Buffet thinks of investments in arcs of time far longer than the meme stock investors and almost all other investors. In doing so, Warren Buffett found a pot of gold at the end of that arc. We can too.