Kevin O’Leary, co-founder of O’Shares ETFs, told CNBC on Wednesday that he began negotiating alongside users of Reddit’s WallStreetBets forum in hopes of better understanding the online community that played a key role in recent release of GameStop.
In an interview with “Squawk Box,” O’Leary said he entered $ 10,000 into the popular brokerage app, Robinhood, and said he joined Reddit to “ride with the herd.”
“There’s a completely new sheriff in town and they’re not stupid,” said O’Leary, also an investor in “Shark Tank”. He added that he has been impressed with the sophistication some Reddit users have shown, saying they are not “as stupid as everyone thinks.”
“They’re looking for short-circuit situations that have thin floats. They’re organizing the night before and going after stocks and in most cases making them go up,” he said, adding that he gained 5% on Tuesday. ” in some crazy pharmaceutical company I had never heard of. “
As part of a personal experiment, O’Leary said he compares the performance of his daily quote account to the returns he generates through a theft advisor, who uses computers to manage money. “I’m seeing how my robbery advisor is earning me right now. The point is, it’s a fantastic democratization” and an important lesson about the risks of trading versus long-term investment in a diversified portfolio, he added.
O’Leary’s comments came Wednesday a day before the House Financial Services Committee held a hearing focused on the GameStop bargaining craze that erupted in late January.
The shares of the video game retailer increased as retailers who gathered on sites like Reddit rushed to buy the strong stock bet. Hedge funds such as Melvin Capital, which had reduced shares, tried to minimize their losses by buying shares at higher prices, which added to GameStop’s upward momentum. With these two forces at stake, GameStop went from less than $ 20 per share in early January to an intraday high of $ 483 on January 28, a huge increase of more than 2,300%. Since then, shares have fallen below $ 50.
At the height of frantic activity, brokers like Robinhood temporarily imposed trade restrictions on GameStop and other very short stocks. Lawmakers are sure to ask CEO Vlad Tenev about this at Thursday’s hearing. Melvin Capital CEO Gabriel Plotkin, Reddit CEO Steve Huffman, and Keith Gill, a Reddit user and YouTuber who helped spark GameStop’s fashion, will also participate in the audience.
O’Leary said he believes most people who criticize brokers like Robinhood and Reddit users have no first-hand experience with either platform. So he decided to start using both platforms.
In doing so, O’Leary hopes to show newcomers to the equity market that it is difficult to make money by trading daily and that the best way to generate wealth over time is through long-term investment. “I think education is powerful and important,” he said.
Disclosure: CNBC has the exclusive rights to offline cable “SHark Tank“, in which Kevin O’Leary is co – host.