Smart Money Shouldn’t Short Robinhood Cult Favorites Too Soon
(Bloomberg) -- When Robinhood investors decide to dive into a stock, smart money might want to surf the early waves.
That’s DataTrek Research’s takeaway from a study on bubble creation by the Federal Reserve Bank of New York. Researchers found that over 10 sessions, untrained college students underpriced stocks at first, but then kept riding them up past their fundamental values.
Based on the evidence, professional traders “don’t want to be short a retail investor cult favorite from Days 1 to 5,” DataTrek wrote.
“The fact that the rookies create asset price bubbles in the middle of their involvement is intriguing,” Nicholas Colas, co-founder of DataTrek Research, said in an interview.
Timing stock bubbles isn’t the only tricky part in looking to hitch a ride on early retail investor enthusiasm. It’s now harder to figure out what day traders are buying since Robintrack, a website that traced activity on the Robinhood app, ended its service.
Ross Gerber, chief executive officer of Gerber Kawasaki Inc. and an avid Twitter user, says ticker searches on social media can help fill the void. While he warns that platforms such as Twitter and Reddit are “easily manipulatable” by fraudsters, “I do think you can see where people are trading.”
©2020 Bloomberg L.P.