One particular moment stands out vividly in my mind. It was during the summer of 2020 when a young and technology-savvy colleague hurried into my office brimming with excitement, blurting out: “Alex, you absolutely must write about Reddit and how young individuals are reaping substantial profits by exchanging social media-based tips.”
My 75 years of age and five decades of caution when writing about financial markets immediately switched on.
Witnessing the flood of money pouring into struggling entities like the Gamestop video game retailer, as well as other failing American companies including AMC and Bed, Bath & Beyond, that were experiencing extreme fluctuations in their stock prices and later became known as meme stocks, did not arouse much interest in me.
Meme stocks, for the uninitiated, are shares popularised by social media with the title derived from the Greek for ‘imitated’.
For me, the mixture of poorly researched advice from social media platforms and the allure of trading without paying any commission, facilitated by platforms like Robinhood, appeared to be nothing more than a passing trend. It did not align with the more prudent and thoughtful investment strategies I would typically present to our audience, which rely on careful analysis and insights from experts.
As much as they might value speculative tips, I did not imagine readers scouring the internet for the next eruption in a share price. Nor could I think that in Britain, where share transactions are subject to commissions and a much-despised stamp duty, this was ever going to catch-on.Â
Moreover, younger readers have enough trouble paying rent and seeking to save for a mortgage. If they wanted to wager, the local William Hill and the 3.30pm jump race at Cheltenham would be a wiser bet.
Reddit has become a £24bn behemoth, with enough value to conquer the top 30 of the FTSE 100 if it were a UK stock
Some five years on this elderly gentleman, or should I say old fool, has not for the first time changed his mind. The US has always had a strong retail stock market following. As a reporter in America in the free-market Reagan years (1980-88), one of the enduring images as I moved across the vast country was how many small Mid-Western towns had a Merrill Lynch office or Charles Schwab sign on Main Street. Share ownership and trading was as American as apple pie and pickup trucks. But it was for the post-war baby boomers, who had only known prosperity, not the youngsters on their Nintendo machines and Sony play stations.
Now I know differently. Since 2020, when the meme stock phenomena took flight, the S&P 500, Nasdaq and Dow have become the playground for millennials, Generation X and Generation Z.Â
Reddit, the platform where many of this new generation of investors look for snippets of information and corporate data, is no longer a samizdat site. It has become a £24bn behemoth, enough value to conquer the top 30 of the FTSE 100 if it were a UK stock.
As for Robinhood Markets, it has become a stockbroker of choice for American retail investors. It has come from nowhere and is now valued at close to £30bn which makes it many times more valuable than any of the UK’s investor platforms such as Hargreaves Lansdown and AJ Bell.Â
Its market capitalisation is not far short of some of the UK’s poorly regarded high street banks. Since it launched just over a decade ago, revenue at Robinhood has bounded ahead six times to £1.6bn and assets under management have reached £75bn. The number of users, most of them younger retail investors, has rocketed to 11.8m.Â
Established US broker Charles Schwab
There is an enormous contrast with UK platforms. Average account size at Robinhood is just $4,000 against $234,000 at established US broker Charles Schwab. (Barclays bought the UK arm of Schwab two decades ago and is the only UK retail bank which retains a strong stock broking presence).
The memes section of the Reddit site has some 29.7m subscribers, and its extensive discussion of shares to buy is a big driver of trade to Robinhood. The posts, generated by younger investors, draw upon a much wider range of sources than the conventional investor community. They include consumer experience of the companies in which invest, contributions by employees often in the lower reaches of companies as well as social media influencers.
What really is impressive is Reddit’s attraction, across all its favourite subsets, to 18- to 29-year-olds which make up 44pc of its users, with a further 31pc being 30 to 49. Fogies, like this writer, in the 65-plus range represent just 3pc of Reddit users.Â
The harvesting of stock information for habitués is vastly different from traditional research, drawing on a range of broader stakeholder resources.
It offers brilliant from the ground up insights too often missing from narrow technical analysis. A narrow focus on quarterly earnings per share often misses the bigger picture. There have been recent insights into how ground-up information can work in the UK. Reporting on a shortage of Guinness in Britain’s pubs in the run-up to and during the festive season came not from a regulatory announcement to the stock exchange by the brewer’s owner Diageo, but the social media posts of lovers of the dark stout. Tim Martin of Wetherspoons, the UK’s biggest landlord, quickly was on the case, vowing strong words with Diageo.
When a Guinness shortage in Britain’s pubs was reported on social media, Tim Martin, Wetherspoons boss and the UK’s biggest landlord, was quickly on the case, vowing strong words with Guinness maker Diageo
The millennials and generations X and Z treasure the ease of use and apparent cheapness of the Robinhood platform. There is no commission structure and if the transaction is not executed through the London Stock Exchange stamp duty is avoided. Such charges are particularly intrusive on small parcels of shares.
Robinhood effectively assembles small orders which and the trades are directed through market makers, who act like old-fashioned City jobbers (a pre-Big Bang institution) and the cost are absorbed on the price of the buying or selling transaction. The cost is there but the retail buyer or seller does not see it.Â
In Britain, the nearest platform we have to a Robinhood is Interactive Investor, owned asset manager Abdrn, which offers a flat low-rate commission structure.Â
Meme culture and information is accessible to the UK, which accounts for 7.33pc of Reddit users. Just under 50pc are in the US. At present, UK Government focus is on persuading the managers of UK pension funds to invest the life savings of workers more adventurously in Britain, in its growth companies, green energy and infrastructure. How much better it might be if, as in the US, the City of London could make investment exciting and cheap enough to attract a younger generation of retail investors?
Being smart on social media is part of that. But making stock market deals in the UK cheaper, by removing stamp duty, could make an enormous difference.Â
Meanwhile British investors can tap into the enthusiasm and expertise of a new generation by tuning into Redditt and buying shares in a fast-growing social media site and execution agent Robinhood. As a previously sceptical silver surfer, I now recognise how we can all learn from shrewd and more tech alert younger cohorts.
Should YOU buy shares in Reddit and Robinhood?
RedditÂ
Reddit was set up in Massachusetts in the United States in June 2005 but has been on the stock market in New York for less than year.
Now based in San Francisco, the shares have risen nearly five-fold to $164.65 having started trading at $34 each in March 2024.
So have investors yet to buy the stock missed out?
Analysts at Jefferies don’t think so and yesterday raised their so-called ‘target price’ on the shares to $215 from $175, suggesting there is still some way to go.
They are not alone in their optimism.
Of the 19 analysts that have a rating on the stock, 14 described it as a ‘buy’ with four of them saying it is a ‘strong buy’.
A further four recommend those that already own the shares to ‘hold’.
One, however, says the stock is a ‘strong sell’, which should give anyone tempted to take the plunge pause for thought.
Robinhood Markets
Robinhood made an explosive start to life on the stock market after its shares listed in New York at $38 each in July 2021.
Within days they were trading at over $70 each as investors rushed in.
The euphoria was short-lived, however, and the shares were changing hands for less than $7 each by June the following year.
There has been something of a recovery, with the shares up almost six-fold since then, currently at $39.59.
Analysts at Barclays yesterday raised their target price on Robinhood to $54 from $49.
And of the 17 analysts that rate the stock, five say ‘hold’ while 12 say ‘buy’ with three of them saying the shares are a ‘strong buy’.
Like all investments, it is not without risks, as the huge swings in the share price since 2021 have shown.
