Kevin O’Leary, co-founder of ETF O’Shares, told CNBC on Wednesday that he started trading alongside users of Reddit’s WallStreetBets forum in hopes of better understanding the online community that has played a key role in the recent GameStop tightening.
In an interview on “Squawk Box”, O’Leary said he put $ 10,000 into an account with the popular Robinhood brokerage app and joined Reddit to “roll with the herd”.
“There’s a brand new sheriff in town and they’re not stupid,” said O’Leary, also an investor in “Shark Tank”. O’Leary 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 have thin floats. They organize themselves the day before and they go after the stocks and in most cases they bring them up,” he said, adding that he made 5% on Tuesday “on a crazy pharmaceutical company that I had never heard of”.
In a personal experience, O’Leary said he compared the performance of his daily trading account with the returns he generates through a robot advisor, which uses computers to manage money. “I’m watching my robo-advisor fight me right now. The point is, it’s a fantastic democratization” and an important lesson in the risks of trading versus investing long term in a diversified portfolio, he said. -he adds.
O’Leary’s comments on Wednesday came a day before the House Financial Services Committee held a hearing focused on the GameStop business mania that erupted in late January.
Shares of the video game retailer have soared as retail traders who flocked to sites like Reddit rushed to buy the heavily-versus-stock bet. Hedge funds such as Melvin Capital, which shortened the name, sought to minimize their losses by buying shares at higher prices, adding to GameStop’s bullish momentum. With those two forces in play, GameStop went from less than $ 20 a share in early January to an intraday high of $ 483 on January 28 – a whopping increase of over 2,300%. The title has since fallen below $ 50.
At the height of the frenetic activity, brokerage houses such as Robinhood have temporarily placed trading restrictions on GameStop and other heavily shorted stocks. Lawmakers are sure to ask Robinhood CEO Vlad Tenev about this during Thursday’s hearing. Melvin Capital CEO Gabriel Plotkin, Reddit CEO Steve Huffman, and Keith Gill – a Reddit user and YouTuber who helped spark the GameStop craze – are also expected to participate in the audience.
O’Leary said he believes most of the people who criticize brokerage houses like Robinhood and Reddit users lack direct experience with either platform. That’s why he decided to start using both.
In doing so, O’Leary expects to show newcomers to the stock market that it is difficult to make money through day trading and that the best way to build wealth over time is to invest. long-term. “I think education is powerful and important,” he said.
O’Leary made a fortune selling an educational software company he founded in his basement in 1986 at Mattel for $ 4.2 billion in 1999. He then started O’Shares, an investment firm. which provides exchange traded funds for long term wealth management.
Disclosure: CNBC owns the exclusive rights to the off-grid cable for ??Shark tank, on which Kevin O’Leary is co-host.