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Wallstreetbets Founder on the state of meme stocks: 'Institutions have wisened up'

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Wallstreetbets Founder Jaime Rogozinski joins Yahoo Finance to recap the year that was for meme stocks and where that style of trade might head in the future.

Video Transcript

- Jared, we can't talk about the meme stocks without talking about the Reddit forum Wallstreetbets. And for that, we have Wallstreetbets founder Jaime Rogozinski with us now. Jaime, thank you so much for joining us.

I wanted to start off with the moves that we saw today in some of the stocks that had originally been popularized on Wallstreetbets earlier this year. And you heard Jared break it down for us-- GameStop down 14%, AMC down 15%, Bed Bath & Beyond down 6 and 1/2%. These have been volatile stocks throughout the year.

But this particular cohort of meme stocks has still been down over the past month and three months after massive rallies at the start of this year. Is this to suggest that this year's unprecedented retail trader participation is starting to fade? Or is something else going on here?

JAIME ROGOZINSKI: I mean, the stocks are still up. Like, what was it, 900%, 600%? They're unheard of. I don't know what's happening in the markets today. I hadn't seen it until I saw those numbers a minute ago.

But you're right in that they are very volatile. And if they are very volatile, that almost implies that there is still a lot of retail activity. Retail can be buying, or retail can be selling. It's that activity that's showing through in the form of volatility.

So I'm not convinced. I don't think that retail is going to go anywhere anytime soon. I don't think you're going to get to see another GameStop-type short squeeze anymore because I think the market has wised up to it. But I think the participants, the retail participants that are in the market, are here to stay.

- And that's exactly where I wanted to go with my next question here. How sticky is this phenomenon because we've seen a lot of retail investors who are making money hand over fist earlier in the year? A lot of those investors have suffered some losses.

Some of the accounts have been wiped out. And we know with traders who are just beginning the game, it takes years to really get a handle on things. How much do you think this retail-trading phenomenon is going to stick in the markets and be a force maybe not only next year, but for years to come?

JAIME ROGOZINSKI: OK, except they're not investors. The retail participants are in here to trade. They're in here to use the market in a different way.

Yes, of course, they all want to make money. But you'd be hard-pressed to say that they're behaving like an investor, which is this long-term time horizon, diversified, dividend collecting, compound, blah, blah, blah. They can also do that as well.

But a lot of these retailer-- when people refer to these retail participants, they're more often referring to these meme stocks. They're not afraid of risk. They're not afraid of taking chances, of finding inefficiencies that they can exploit for their own benefit. So I don't necessarily know that the behavior of well, you know, they invested in GameStop and now they were left holding the bag.

They were never-- well, GameStop, I think might be an exception. But all the other ones like AMC and Bed Bath & Beyond and [? Car ?] and Avis or whatever, they're all just opportunities to try and make short-term money from them. And sometimes, it works. And sometimes, it doesn't.

And that's the case for all market participants, whether it be Warren Buffett, who lost money with the airlines during the pandemic, to high-frequency computers or these algorithms of trade to technical traders that draw charts on the screen. Everyone makes and loses money, so that's-- retail participants are not immune to that same component of participating in the market.

- And I hear you. You're talking about these meme stocks, these retail traders, in a different sense than necessarily the buy-and-hold investors. And I get that.

I want to talk about and get your reaction to the forum space that you created because we saw a lot of infiltration by third parties. Maybe they were hedge funds. You know, you get the amount of money that's invested in here, the amount of money that can be made, you're going to expect some outside actors to crowd the space and try to get in and maybe worm their way into different information memes themselves and try to control the narrative.

I'm just wondering, how true do you think the forums are to their original selves? Or have they evolved in certain ways? And what are those ways?

JAIME ROGOZINSKI: I mean, it's difficult. There's just a lot of ways to read into that, right? So you have these hedge funds that now are taking notice of what's happening. They're putting an additional desk in their office.

They're saying your job is not to monitor social media so that we know what's going on, right? Like, it's the relevance of the acknowledgment of this retail space being something that matters. It's an additional checkbox before you short sell a stock to make sure that it's not being talked about on Wallstreetbets.

If we're talking about something more nefarious, such as, let's go into this forum and promote this particular stock or manipulate the herd into turning this into a meme stock, that's been happening forever, long before GameStop. And there's a lot of different protections in place. But lastly, it's also a very difficult thing to do because this retail space, it's not just in this one forum. It has expanded outside of that.

And you have instances on things like Instagram and TikTok and Twitter. And you also have chat rooms on Discord and chat rooms on Telegram and on Facebook. And even then, you have the more granular-level approach where it's like we just want to talk about silver street or silver, so silver street bets, or crypto or Korean stocks.

So you'll have some more segmented pockets of it. And so it's a little bit harder to just infiltrate it and infect it like a virus and say, well, now we've been able to influence this group to our liking. So as a whole, I think that the system is itself-- the social media system itself is impervious to that type of influence.

- Well, and speaking about-- you were talking earlier about finding inefficiencies that can be exploited. When Wallstreetbets and GameStop and AMC were really having their moment initially at the beginning of this year, short interest was one of those common features between these stocks that became popular. Do you think that that's going to continue to be a feature that these traders look for going forward? Or are there other commonalities that you're seeing as becoming something that these traders look for to target their next stock picks on Wallstreetbets and beyond?

JAIME ROGOZINSKI: I mean, there's two things to say. Number one, it'll continue to be a feature they look for in case they happen to stumble another one. But the market has wizened up. The short interest on GameStop was certainly a really important component of it, and so were the profile for the stock options around it because there was a more sophisticated play using the "gamma squeeze," so-called.

And so there was a lot of components that made GameStop possible. I think there's going to be people that are constantly looking to make sure that there isn't an opportunity. But the institutions have wizened up. I think the companies are now going to be really scared of having a company that's shorted over 100%. I think that makes them an instant target, so I doubt we'll see a lot of instances of that.

And I'll [INAUDIBLE]-- and we've already seen a number of instances where something becomes a meme stock, and the options dealers, the market makers, they increase the price of their premium, making it much more difficult to these maneuvers. In other words, the market has figured it out. It's a little bit more protected against that maneuver.

Now, going back to that second point, finding inefficiencies is not just doing a short squeeze. GameStop was an epic example of an inefficiency that was exploited. But there's been different types of exploits done long before GameStop, and they'll continue to happen next in ways that the market is not yet prepared for.

And so they'll take the market by the storm. Remember, there's millions upon millions of people that are beta testing the market, basically. They're looking for bugs like a software program.

And as soon as they find it, they share on social media. They improve upon it. They exploit it. They make money, and then the market gets wise. They fix that problem, and they move on to the next one.

- All right, we'll leave it there for now. Thank you so much, Jaime Rogozinski, founder of Wallstreetbets.