It ran for all of five seconds. This was the Reddit commercial that aired on 8 February during the Super Bowl, the US National Football League’s annual championship game. Bookended by split-second shots of cars and horses, the ad’s central image was a text box containing 120 words.
Reddit, which bills itself as ‘home to thousands of communities, endless conversation and authentic human connection’, had a message to deliver even if it meant, as it claimed, exhausting its marketing budget to buy a sliver of incredibly expensive advertising space.
Stock market dust-up
The ad was crammed with references to something that has dominated the business news recently. Some people call it the Reddit Rally. There are many other names for it, but everybody can agree that the users of Reddit, basically a sprawling collection of online forums, are among the principal players in the US stock market dust-up between hedge funds who made bets that the prices of certain stocks would fall and retail investors who instead pushed up the prices.
The sharing and egging on in Reddit and other social media websites was pivotal in inspiring the groundswell of retail interest in stock trading.
When a stock exchange becomes a chaotic battlefield, the usual tinge of opportunism and antagonism is wildly amplified and there will be collateral damage
The fight was first focused on struggling video game retailer GameStop. At the start of the year, the stock was traded at just over US$17. But it then climbed in spectacular fashion once retail investors, notably those in the WallStreetBets forum on Reddit, figured out that it was profitable to trade against fund managers who were short selling GameStop.
The stock seems to have peaked at US$347.51 on 27 January, when the price soared 135% from the previous day’s close of US$147.98.
Disrupting the status quo
The frenzy soon spread to several other unloved stocks that were also short-selling targets. The hedge funds suffered losses and other Wall Street institutions were unsettled by the disruption of the status quo. The triumph (and gains) of the individual investors emboldened others to enter the fray.
Things became murkier when online stock trading platforms popular with the retail investors imposed temporary restrictions on transactions involving Reddit Rally stocks. There were furious allegations that this move favoured the short-sellers.
SEC steps in
On 29 January, the US Securities and Exchange Commission (SEC) issued a statement to say it was closely monitoring and evaluating the ‘extreme price volatility’ of some stocks over the past several days. In addition, the SEC warned that such volatility could potentially expose investors to rapid and severe losses, and undermine market confidence.
Back to the Reddit commercial. In it, Reddit said it had learnt from its communities that underdogs could accomplish just about anything when they came together around a common idea. ‘Powerful things happen when people rally around something they really care about,’ it added.
Big bad wolves
Let us recognise the ad for what it was – a branding exercise. But it also supported the idea that the recent stock market developments were rooted in noble intentions, and that David the heroic shepherd and his friends have banded together to teach the big bad wolves of Wall Street a lesson.
Although this is an easy story to embrace, we must not overlook the fact that when a stock exchange becomes a chaotic battlefield, the usual tinge of opportunism and antagonism is wildly amplified and there will be collateral damage.
What we have seen might well be a fascinating social phenomenon, but it was also a series of investment manoeuvres that created winners and losers. The latter category do not just include the hedge funds; by the time the dust settles and the stocks are more reflective of their fundamentals, the casualty list will surely include some retail investors as well.
We applaud when the little people win because such victories are uncommon, unexpected and uplifting. However, the everyday reality is that the little people are vulnerable because they lack the resources and knowledge that can shield them against predators and the vagaries of life. The Reddit Rally has not changed that – not even for five seconds.
