Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Reddit right about the SPDR S&P 500 ETF Trust?

Reddit stock pickers are not as crazy or as stupid as the media claims. Notably, the most trending stock on Reddit on 17 October 2021 was a surprisingly conservative pick.

That stock was theSPDR S&P 500 ETF Trust (NYSEARCA: SPY), Ape Wisdom notes. In other words, the supposedly radical and crazy Reddit investors like a  boring S&P 500 Index fund. Reddit members mentioned SPY 121 times in 24 hours on 47 October 2021.

The SPDR S&P 500 has experienced incredible growth in the past year. Its share price rose from $342.01 on 19 October 2020 to $450.64 on 19 October 2021. Moreover, State Street estimates the SPDR S&P offered a one year return of 30%, a five-year return of 18.9%, and a 10 year return of 16.83% on 30 September 2021.

Reddit vs. The Media

Like all index funds, the SPDR S&P 500 is a simple benchmark of the top 500 stocks on US national exchanges. They call it an S&P 500 because Standards & Poor’s lists the 500 US companies with the largest market capitalizations. Hence, the S&P 500 creates a diversified large cap market fund.

The fund has enormous value. The SPDR S&P 500’s manager; the State Street Corp (NYSE: STT), claims the fund held $395.962 million worth of assets on 14 October 2021.

So yes, it appears Reddit users are smarter than the media will have us believe. Notice that journalists pay no attention when Reddit users talk about a safe and conservative stock, but publicize Reddit users’ hyping of junk such as GameStop (NYSE: GME).

Notably, another Reddit favorite was a market favorite, Tesla (NASDAQ: TSLA) which had 98 mentions in 24 Hours according to APE Wisdom. I consider Tesla an excellent company that Mr. Market grossly overprices. For example, he paid $864.27 for Tesla (TSLA) shares on 19 October 2021.

Can Reddit pick stocks?

For example, Tesla (TSLA) reported $16.555 billion in cash and short-term investments on 30 June 2021. Tesla makes money. It reported a quarterly gross profit of $2.884 billion, a quarterly operating income of $1.312 billion and quarterly revenues of $11.958 billion on 30 June 2021.

Tesla is experiencing incredible growth. In fact, Stockrow estimates Tesla’s revenues grew by 98.11% in the quarter ending on 30 June 2021. Furthermore, Tesla’s quarterly revenues grew from $6.036 billion on 30 June 2020 to $11.958 billion on 30 June 2021. Similarly, the quarterly operating income rose from $327 million on 30 June 2020 to $1.312 billion on 30 June 2021 and the quarterly gross profit grew from $1.267 billion on 30 June 2020 to $2.884 billion on June 30, 2021.

Thus, Reddit can pick stocks. Unfortunately, I spotted many stocks I consider junk on Reddit, including AMC Entertainment Holdings (NYSE: AMC) and something they call Smile Direct Club (NASDAQ: SDC), (don’t even ask).

The bottom line is Reddit users are smarter than the media claims. However, you need to be leery of some of their picks. Yet, I believe Reddit is correct about the SPDR S&P 500 ETF Trust (NYSEARCA: SPY). It is a good ETF and a great place to park your money.

However, I still view Reddit as a waste of time. Yet, I think this social media could provide some valuable insights into investors’ behavior.