Day traders are credited with sparking a revolution on Wall Street, helping to juice the shares of GameStop Corp.
and AMC Entertainment Holdings
and rattling the foundation of segments of the hedge-fund industry in the process.
Now, a group of data providers are wagering that financial markets will never be the same again and that deep-pocketed investors will shell out big bucks to monitor discussions on message boards like Reddit’s r/wallstreetbets and social-media platforms like Discord for mentions of publicly traded companies.
“ We believe this is a kind of watershed moment and perhaps irreversible,” Boris Spiwak, director of marketing at alternative data company Thinknum told MarketWatch in a Monday interview. Thinknum’s plans were mentioned in a Barrron’s article over the weekend.
Spiwak said that he envisions clients that use the services of companies like Thinknum as a way to not only profit from chatter on social-media platforms but also as a form of crisis management, as klatches of individual investors gather on platforms to coalesce around investing ideas.
“This is very new and we see it as a crisis-management purchase, as an insurance policy, and a way to increase returns and minimize losses,” for clients he said.
Thinknum’s service, which kicked off last week, is one of the most expensive that it offers to clients, costing just under $25,000 a year, to track the number of times New York Stock Exchange-listed companies, and those on the Nasdaq, are called out on sites like r/wallstreetbets or other Reddit sub-reddits.
“Demand has been massive — we’ve received over 100 inbound requests from hedge funds in the last few days,” wrote the Thinknum marketing director.
Thus far the interest in these pricey products come from fund managers but the company says it also is fielding inquiries from institutional investors looking for “an insurance policy to protect themselves from Reddit.”
The moves by the alternative data company come as videogame retailer GameStop and other companies, like movie chain AMC Entertainment and headphone maker Koss Corp.
have experienced a parabolic run-up in share values over a short period as investors congregating on sites like Reddit’s r/wallstreetbets, poured millions into heavily shorted companies to spark a rally in those shares.
The recent advance in heavily shorted shares targeted by the army of individual investors appeared to be causing pain for hedge funds.
Melvin Capital Management, one of the hedge funds seen at the center of the kerfuffle over GameStop, lost 53% on its investments in January, The Wall Street Journal wrote, citing people familiar. WSJ also said that another hedge fund Maplelane Capital ended January with a roughly 45% loss.
Meanwhile, Andrew Left, founder of Citron Research, last Friday, a famed short seller, altered his strategy, saying that his firm would no longer be publishing short selling reports. Left was seen drawing the ire of individual investors for his negative views on GameStop — a bricks-and-mortar retailer that he says was worth only around $20 in the midst of a growing shift of digital videogame sales.
“Young people want to buy stocks. That’s the zeitgeist,” said Left about his decision to exit the business of identifying companies that he thinks are overvalued and announcing publicly that he ‘s betting its shares will sink.
“They don’t want to short stocks, so I’m going to help them buy stocks,” Left said of his focus on long investing.
Other companies, including SimilarWeb are also trying to promote tools for investors to track investing and discussions on popular social-media sites and on some of popular trading platforms.
SimilarWeb says that it can track searches for stock ticker symbols among users of the mobile app and desktop users on Robinhood Markets platform, for example. SimilarWeb says that search activity can be indicative of actual trading and can help clients identify trends early, according to Ed Lavery, director of investor solutions at SimilarWeb.
“Demand for data on retail trading platforms has surged,” Lavery told MarketWatch in a phone interview Monday afternoon.
Lavery said the estimated data on search that SimilarWeb offers has been something that the company has been tracking for years but had only been solicited by clients in recent days. He said Similar has similar data on Charles Schwab
and E-Trade Financial but Robinhood has drawn the most interest among its users.
“ Robinhood as a platform is making more noise,” he said.
SESAMm, which bills itself as one of the leading providers of analytics and artificial intelligence for investment professionals, also had either developed or was working on services that could help identify social-media trends, said Spiwak.
SESAMm, which recently scored some 7.5 million in venture-capital funding from NewAlpha Asset Management and global investment firm The Carlyle Group, didn’t immediately return an email for comment.
Meanwhile, the liquidation of profitable long positions by hedge funds and other investors who needed cash to cover losses on losing short positions has been blamed for the Dow Jones Industrial Average
the S&P 500 index
and the Nasdaq Composite Index
registering their worst weekly losses since October last Friday.
Markets were attempting to claw back from those losses early Monday, kicking off what is likely to be a turbulent February.