GameStop stock is plummeting, but the Reddit uprising has only just begun

That’s partly because of trading restrictions from Robinhood and other brokers on how many shares of volatile stocks like GameStop, AMC (AMC), to express (EXPR) and Nokia (ENOUGH) that private investors can buy in one share at a time.

“I have no doubt that there are funds and major players who have again shorted these stocks, thinking they are smarter than anyone at WSB,” said the Dallas Mavericks owner and Shark Tank investor on a Reddit AMA. “I know you won’t like hearing this, but the lower it goes, the more forcefully WSB can act to buy back the stock.”

“Social investing is not going away,” said Kerim Derhalli, CEO and founder of Invstr, a trading app. “This is a powerful commercial trend and we are only at the beginning. People have more information and power.”

Younger investors have taken control of the market

“Younger retail investors are in touch with changes that are taking place. They understand consumer trends because they are the ones who create and create these trends,” said Derhalli. “There are some millennials who are making a lot of money and there are hedge funds who are pissed off that private investors have joined the game and beat them in it.”

Still, some Wall Street veterans are concerned that this will not end well for smaller investors.

They point to the dot-com / tech stock collapse in 2000 as a sign of what could happen when retail investors get too excited and lose focus on fundamentals like sales and earnings – not to mention valuations.

At the time, the trading frenzy was built on message boards like Raging Bull and Yahoo Finance, as opposed to Reddit and Twitter.

“This is disturbing and troubling. It could be like March 2000 again,” said Richard Smith, CEO of The Foundation for the Study of Cycles, a research firm.

“What this has mainly done is show how gamified the exchange environment is, and hopefully people will wonder if this is the way we want markets to work,” Smith added.

If average investors end up being burned by stocks like GameStop, it could lead to less confidence in Wall Street and the wider market.

Some less experienced investors may give up stock ownership altogether – as many individuals did after the 2000 crash and again when Lehman Brothers imploded in 2008.

“The market will be destabilized. Too many people will lose money. Fewer people will participate in the stock market – no more,” said Sergey Savastiouk, founder and CEO of Tickeron, an artificial intelligence platform for traders and investors.

“What’s going on with GameStop and AMC is like driving without a license,” he added.

This time may be a bit different

But there are some big differences between now and two decades ago – not to mention the great financial crisis of 2008-2009, a time when social media and free online commerce were not as ubiquitous as they are now.

Average investors can now trade more efficiently and cost effectively thanks to no-fee brokerage firms such as Robinhood – a move that essentially forced all other major brokers to drop commissions.

The rise of fractional trading (ie, holding a fixed dollar amount of an expensive stock such as Amazon or Alphabet) and the popularity of index ETFs also makes it easier for investors to buy small pieces of many stocks.

And Reddit’s megaphone is significantly louder and more influential than the old chat boards of the late 1990s.

“This trend is not going to end anytime soon. There are some investors who only play in the individual equity arena once. But there is a fear of missing out,” said Gust Kepler, founder and CEO of BlackBoxStocks, a trading software company.

“That may not sound much different from the late 1990s with day traders, but now social media is increasing the ability for groups of investors to collaborate and share information in real time,” added Kepler.

In that sense, even Smith of the Foundation of Cycles reluctantly expressed admiration for the Reddit merchants who figured out how to stick with the short sellers.

“I respect those who saw what was going on, how it worked and exploited it,” he said. “But what value has been created?”

Stocks like GameStop and AMC do not increase in value because they generate high revenues and profits, pay large dividends or contribute significantly to the economy by creating thousands of jobs.

But that misses the point. There is no rule that says investors should only buy large blue chip companies. Some investors are getting tired of buying safer, passively managed index funds and want to gamble.

“Individual investors are often viewed as risk-averse, but not all are,” said Josh White, a professor of finance at Vanderbilt University and former SEC economist. “Some prefer what is more of a lottery.”

“They may lose a lot, but every now and then they hit a homerun like GameStop,” said White. “As long as there is that one big hit, people will keep gambling.”