Kevin O’Leary, co-founder of O’Shares ETFs, told CNBC on Wednesday that he started day trading alongside users of Reddit’s WallStreetBets forum in hopes of gaining a better understanding of the online community that played a key role in the recent GameStop short squeeze.
In an interview on “Squawk Box”, O’Leary said he deposited $ 10,000 into an account with the popular brokerage app Robinhood, and that he joined Reddit to “ride with the herd.”
“There’s a whole new sheriff in town and they’re not stupid,” said O’Leary, also an investor in “Shark Tank.” He added that he was impressed with the sophistication some Reddit users have shown, saying they are “not as dumb as everyone thinks”.
“They look for situations that are too short and with thin floats. They organize the night before and go after the stocks and in most cases they drive them up,” he said, adding that he earned 5% on Tuesday. or some other crazy pharmaceutical company I’d never heard of “.
As part of a personal experiment, O’Leary said he compares the performance of his day trading account to the returns he generates through a robo advisor, who uses computers to manage money. “I see my robo advisor beat me now. The thing is, it’s a fantastic democratization,” and an important lesson about the risks of trading versus investing longer term in a diversified portfolio, he added.
O’Leary’s comments Wednesday came a day before the House Financial Services Committee is holding a hearing on the GameStop trading mania that erupted in late January.
The video game retailer’s stock skyrocketed as retailers gathering on sites like Reddit rushed to buy the heavy bet against stocks. Hedge funds like Melvin Capital, which had shorted the stock, tried to minimize their losses by buying stocks at higher prices, adding to the upward momentum in GameStop. With both forces in play, GameStop went from under $ 20 a share in early January to an intraday high of $ 483 on January 28 – a massive increase of over 2,300%. The stock has since fallen below $ 50.
At the height of the frenzied activity, brokers such as Robinhood temporarily placed trading restrictions on GameStop and other heavily short-short stocks. Lawmakers will certainly be asking CEO Vlad Tenev about that at Thursday’s hearing. Melvin Capital CEO Gabriel Plotkin, Reddit CEO Steve Huffman and Keith Gill – a Reddit user and YouTuber who sparked the GameStop craze – will also participate in the hearing.
O’Leary said he believes most people who criticize brokers like Robinhood and users on Reddit have no first-hand experience with either platform. So he decided to start using both platforms.
By doing this, O’Leary expects to show newcomers to the stock market that it is difficult to make money through day trading and that the better way to build wealth over time is to make long-term investments. “I think education is powerful and important,” he said.
Disclosure: CNBC owns the exclusive rights to non-network cable S.Rake Tank, “on which Kevin O’Leary is a co-host.