Beyond GameStop: survey reveals Reddit’s larger-than-expected influence on investing

When users on the social media platform Reddit engineered a stunning and meteoric rise in GameStop (NYSE:GME) share prices earlier this year, the episode could have easily been considered a fluke. Yet a new survey from Investing.com has found that Reddit’s broader influence on the investing space is more substantial than expected.

According to the survey, conducted among 1,302 U.S. investors, more than 1 in 5 respondents have used Reddit to drive an investment decision. While conventional wisdom would seem to relegate social media-driven investing to younger users from the Millennial and Gen Z age groups, the survey actually reveals that more than 17 percent of investors born from 1928-1980 have also used Reddit to actively drive financial decisions. Interestingly, nearly half of investors above 40 years old have been on Reddit or downloaded the app since the drama that played out with GameStop earlier this year.

“It’s not at all surprising, given the recent Reddit WallStreetBets Meme Stocks saga, which dominated markets earlier this year,” said Jesse Cohen, senior analyst at Investing.com. “The sharp spike and huge gains in those names drew investors - young and old alike - to the WallStreetBets forum to find out what stock everyone was coordinating to buy next.”

The trend is hardly limited to Reddit, as 55 percent of respondents have used some form of social media platform to research an investment decision. Over 20 percent use Twitter to make investment decisions, 17 percent use Stocktwits and 7.5 percent use Facebook for that purpose. And Reddit or not, 47 percent of those surveyed have purchased GameStop or AMC Entertainment (NYSE:AMC) stocks during the past three months.

This sudden surge in meme stock interest since January, particularly in GameStop, is further showcased through data provided by Investing.com's Portfolio, revealing that investors following GameStop’s stock within their holdings, increased as much as 1,000% just from December 2020 (16,638 users) to January 2021 (199,489 users), and almost 2,000% when compared to March (303,641 users). Investing.com’s Portfolio enables users to monitor all their financial instruments and holdings, on any device.

Not surprisingly, nearly 80 percent of respondents who use Reddit to drive investment decisions have been doing so for only the past few months, aligning with the timeline of the GameStop drama. More than 70 percent of investors who use Reddit to drive their decisions plan to continue doing so during the coming year. At the same time, just 6 percent of those investors say Reddit is their only source of information for investment decision-making.

“The dramatic rise in retail investing seems like it’s here to stay, and that should bode well for social media platforms like Reddit,” Cohen continued. “These social media forums are replacing traditional financial news outlets as the place-to-go to research and make informed financial decisions.”

Among those respondents who have not previously used Reddit to drive an investment decision, more than 20 percent do plan to use that social media platform to assist in their investment decision-making in the coming year. More than 60 percent of the same respondents who have not yet used Reddit to drive investment decisions have also not been on Reddit or downloaded the app since the GameStop drama played out, and over 40 percent have been investing in financial markets for longer than five years.

On the regulatory front, 16 percent believe social platforms that are organizing retail investors should be restricted. Eighteen percent say trading platforms such as Robinhood — which was forced to temporarily limit GameStop trades in the aftermath of the saga — should have the right to restrict trading to retail investors. Sixty six percent agree that more needs to be done to protect retail investors and even the playing field against Wall Street, while only 28 percent believe retail investors on platforms such as Reddit pose a threat to Wall Street.

“The battle between the retail investor, which entered the market amid the Covid pandemic, and Wall Street hedge funds will undoubtedly intensify in the years to come. The returns of the individual investor have changed the entire character of the market, and the professionals are no longer the only force that matters,” said Cohen.

Ultimately, it seems clear that rather than a flash in the plan, the GameStop drama was actually a strong indicator of social media’s rising influence on the investing sector as a whole.