There is a method to madness on WallStreetBets. For each growing stock, such as GameStop Corp. and AMC Entertainment Holdings Inc., many other names promoted on the Reddit site fail to launch.
An analysis by the Wall Street Journal of millions of posts on WallStreetBets, the performance of the most mentioned companies every month and interviews with traders show what makes a stock take off.
The shares with the highest chance of success tend to have low stock prices, usually below $ 25 per share, and be easily traded. Low stock prices allow small traders to accumulate stakes more easily and can sometimes mean cheap valuations. Shares of slightly traded shares may be pushed higher or lower than shares of more frequently traded shares.
Large companies with high stock prices and volume – such as the third-most-mentioned company last year, Apple Inc. – tend not to be influenced by what happens on the message board, according to Hudson Cashdan, co-founder of TopStonks.com, a website that tracks actions mentioned on Reddit.
Success stories often have features in common with the actions selected by professionals. Companies seem to be undervalued by some measures and have short-term catalysts to improve their business or at least to generate emotions.