Picture this: The year is 2035. You’ve just commenced your search for an appropriate investment management fund to entrust with your life savings. After consulting with your mentors Bart P. Fuchs IV (@ThisGuyFuchz) and @ParikPatelCFA, you emerge with a plan. You have a meeting scheduled tomorrow with @KarlSmithCFA, a former intern who has recently been promoted to Portfolio Manager at a certain fund called @LitCapital. @LitCapital, or Litquidity, is a part of a new wave of firms that don’t give much thought to their Assets Under Management (AUM). Rather, what Karl emphasizes to you is their Followers Under Management (FUM). The strategy confounds you, until you realize that Litquidity has a social media presence larger than the national debt. Known as the original Finance Meme account on Instagram, their popularity rose dramatically at the onset of the COVID-19 pandemic. It’s at that point that you take into account their competitors; OTC traders such as @Arbitrage_Andy have been fighting for your capital ever since you cashed out on those $BUZZ YOLO options your wife threatened to leave you over. Their investment strategies are all the same; “Either we take you to the moon, or you get mooned.” The only delta these firms care about is the airline and EV/EBITDAC is their valuation multiple of choice. American Psycho is their favorite movie and “Leveraged 3X” is their middle name. The sole differentiator between firms, however unsettling it may be, is their FUM.
While this situation is definitely possible, it is all theoretical. But it does spark the question: Can, and does, social media have an impact on the financial markets?
A few years ago, this would not have even been discussed as a possibility. Enter Elon Musk. The founder of Tesla, who has always been vocal on Twitter, began to make mention of certain securities on the platform. He actually started with his own; in August of 2018, Musk tweeted that he had funding secured to take Tesla private at $420, causing the automaker’s stock price to spike. Unsurprisingly, the SEC filed a lawsuit a month later against Musk, alleging that Elon shouldn’t be allowed to run a public company ever again. Even after this, Musk has tweeted fearlessly about Shopify and Etsy, both times causing their respective share prices to rise. More recently, Musk got in on the GameStop short-squeeze drama, and then Dogecoin, sending the crypto currency soaring.
While inconclusive, the evidence that Musk’s Twitter actions have had some impact on the market is fairly reasonable and understandable. Retail traders regularly call out the CEO on the platform, requesting that he tweet about a specific security in the hope that the post will send it “to the moon.”
Finance memes, or “fin-memes”, have slowly made themselves known on Instagram over the past year-and-a-half. With Litquidity leading the charge, these accounts’ endless barrage of satirical workplace memes have kept burnt-out analysts and associates entertained throughout the duration of the pandemic. The phrase “pls fix,” already an industry staple, was introduced to college students, “hardos”, if I may, hoping to break into the financial industry. Satirical fin-meme merchandise has been selling out across online retailers, with mainstream buyers rocking Lehman Brothers Risk Management sweaters as if they headed up the department themselves. In a tribute to the Wolf of Wall Street, a surprising number of teenagers have apparently been to the Second Annual Stratton Oakmont Malibu Blowout in 1991.
While the finance meme industry has seen explosive growth over the past year, the spotlight was really shone for the first time on social media’s supposed influence on the markets during the GameStop short-squeeze phenomenon back in January. All of a sudden, these memes, which were normally aimed at workplace humor, were now sending these securities “to the moon.” The futuristic man standing next to a market chart with the word “stonks” became the rallying icon of the group of Redditors attempting to hijack Wall Street.
The hype eventually spilled over to Twitter, where an excited army of retail investors, spurred on by their r/WSB success, began to egg on celebrities on Twitter to mention certain “stonks” in their tweets. $AMC, $GME and $NOK became trending symbols on Twitter as the Reddit boys utilized Twitter to appeal to the mainstream public to get in on the hype and drive prices even higher through buying. Through a combination of the short-squeeze phenomenon and the massive trading volume brought on by the masses, prices of $GME and $AMC, among others, soared briefly, hitting highs that would have been unthinkable in normal times.
But what effect, if any, does social media have on the markets? According to a study done by professors and faculty at West Virginia University, social media does, in fact, have a profound impact on the markets. Focusing on Twitter, their findings suggested that posts on the platform were a reliable predictor of market and security movements for the following day. This was based on the discovery that these posts contained sentiment which proved to be an accurate indicator of market performance. The leader of the study, Alexander Kurov, Fred T. Tattersall Research Chair and Professor of Finance in the John Chambers College of Business and Economics, said, “Our results show, however, that Twitter sentiment contains relevant information not yet reflected in stock prices.”
So back to reality; Dr. Parik Patel is not your investment advisor and Bart Fuchs is not your managing director (or, at least, not yet.) You’re probably going to end up putting your money into a mutual fund and not touch it until you take your premature retirement after the artificial intelligence takeover forces you out of your job. That being said, one thing is certain: fin-memes will be telling you to “buy the f– dip” for years to come.
Photo caption: Social media may have an impact on “going to the moon.”
Photo Credit: pixabay.com