Using data and analytics to scrape social media sites to combat the influence Reddit pages like r/wallstreetbets have had over markets in recent weeks is pointless, according to Toscafund Asset Management’s chief economist, Dr Savvas Savouri.
Reports have suggested that hedge funds will now start scraping data from Reddit forums, using language processing to get real-time data about the companies that amateur traders will be targeting in the market.
But Savouri questions whether such data can ever be valuable.
“The moment you start using this data, you become vulnerable to being manipulated or gamed. If I know what signals you respond to, I can effectively send false signals to send you down a route that I would like you to go down, either because it sends you away from my investments or it sends you into my shorts,” he says.
Toscafund’s chief economist is dismissive of the threat posed by retail traders and the impact data can have in markets.
“It’s not how much data you have, it’s how good you are at using it. Knowing what data has value and how to analyse the data that does have value. You could be sitting on the best data in the world, but if you don’t analyse it properly, it might as well be Sanskrit.”
Savouri says the furore over GameStop is merely “as close to being a Ponzi scheme as you’re going to get”.
“It’s a problem that goes beyond Reddit and GameStop. We’ve seen it with Bitcoin, we’ve seen it with cryptocurrency more generally, we’ve seen it with Tesla… this is not new.”
In the US, the Securities and Exchange Commission (SEC) issued a statement warning investors about the risks involved in extreme stock price volatility and re-iterated their intention to ensure “fair, orderly, and efficient markets”.
Savouri says there will soon be a collision between financial and social media regulators.
“They’re different universes and at some point there will be an event where for the sake of protecting families, there’s got to be a regulatory reaction. Sadly, it’ll be an exaggerated reaction.
“The social media platforms aren’t self-regulating or self-policing, because they’re too greedy and too stupid and the financial regulator has other things on its mind. Do they focus on dealing with potential problems with investments from China and Russia – because that’s what Washington, London and Frankfurt care about – or dealing with small town Americans trying to basically game hedge funds?
Savouri argues that this “mass hysteria” can never fully be eliminated until amateur traders suffer.
“Do you know what ultimately pacifies the masses? Losing lots of money.
“It’s all good when you’ve had your one win. Try repeating it. The idea that somehow this is a potential repeat win is so absurd it’s comical,” he adds.