The “Most Influential Person” in the Financial Markets is not an official title, of course.
But according to it least one survey, the most influential person in the markets — by a wide margin — is Tesla (NASDAQ:TSLA) founder Elon Musk.
He also happens to be Time’s Person of the Year in 2021.
Oh, and he’s the richest person in the world worth $300 billion at the moment, according to Forbes’ real-time list of billionaires.
And now, he is also the largest shareholder in Twitter (NYSE:TWTR). According to an SEC filing released Monday, Musk owns 9.2% of the social media giant.
As word got out, investors went nuts, as if they were teenagers at an Elvis Presley concert. “Elvis is in the building!”
TWTR shares flew 27% higher on Monday and… get this… nearly 270 million shares traded hands! That was 2,115% more than the prior trading day and more than one-third of Twitter’s “float” (number of shares available for public investors).
Sounds like investors should listen “the most influential person in the financial markets.”
… Or should they?
Making Sense of the Mania
According to the survey by Investing.com, 63% of U.S. investors see Musk as the most influential person in the markets.
That’s pretty remarkable when you think about it — that more than six in 10 investors see any one person as the most influential. That being the case, it would seem he is too influential to ignore.
Still, caveat emptor also seems to apply in this case… let the buyer beware. Any Elon Musk watcher would agree that he’s nothing if not unpredictable.
This isn’t the first time Elon Musk has moved assets from stocks to cryptocurrencies. And ironically, he’s done it through the platform in which he’s now the largest shareholder.
He’s moved shares of his own company more than a few times… and it wasn’t always up. On May 1, 2020, Musk actually tweeted that TSLA stock was overpriced.
Shares lost 10% that day.
He’s taken a poll on Twitter asking whether he should sell 10% of his Tesla shares. He’s tweeted production figures that were later clarified. He even tweeted in August 2018 that he was “considering taking Tesla private at $420 per share.” (TSLA closed at $342 the day before (pre-split), and it jumped 11% that day.)
But it was apparently a joking reference to 420, a well-known day and time in cannabis culture for smoking marijuana — something Musk himself was doing a month later on a podcast with Joe Rogan.
He’s moved cryptocurrencies as well. Bitcoin (BTC-USD) dropped 5% in a matter of minutes after a tweet saying Tesla would suspend vehicle purchases using Bitcoin because of environmental concerns over mining. Another tweet about Dogecoin (DOGE-USD) sent the meme coin soaring 50%.
And Musk has jumped into the world of “meme stocks” as well, which is appropriate as they are a direct result of the social media age. They originated with subgroups on Reddit in which individual investors decided to go after stocks with the highest short interest, forcing short-sellers to “cover” (buy the stock back) and sending shares higher.
A little over a year ago, the Reddit group turned its attention to GameStop (NYSE:GME). On Jan. 26, 2021, Musk tweeted one world — “Gamestonk!!” — with a link to the r/WallStreetBets subreddit, and shares jumped 50%. The price action in the stock was insane. It went from $20 a share to nearly $500, and then came most of the way back down just as fast.
Sudden price spikes are not necessarily new, but they are more common and easier to come by in an instantly connected world. They can also be fleeting and dangerous, as they create what Eric Fry calls “flows before pros.”
“Once these congregations form, they can quickly and efficiently unify around a singular cause or objective and then rush into action. When these collective efforts succeed, they create a novel ‘flows before pros’ effect.
“The sheer volume of trade flows that the online communities generate overwhelms the professional investors on the other side of the trade… and effectively invalidates all the expert analysis that inspires and supports the professional positions.
“That’s ‘flows before pros.’
“Just like a fling bears little resemblance to a marriage, the WallStreetBets style of trading bears little resemblance to investing.
“These traders aren’t usually looking to hold a given stock for a long time, just for a good time. They have little patience for… well… patience.
“Their collective buying resembles a hummingbird that flits from flower to flower — pausing momentarily to draw a little nectar, then darting off in some other direction.
“This ‘instant gratification’ school of investing is accentuating a trend that has been intensifying for more than 50 years. According to New York Stock Exchange data, the average holding period for U.S. shares has dropped to less than six months, compared to nearly nine months one year ago.
“As holding periods fall, volatility is likely to rise.
“That’s because many of today’s stock market participants don’t simply want to be right; they want to be right, right now. And if they aren’t right, right now, they’ll bail out quickly and lurch toward some other promising trade.
“This hyperactivity introduces an unpredictable influence that could easily boost market volatility.
“Again, GameStop provides a textbook example. A buying panic propelled the stock from less than $50 to nearly $500 in just four trading days. But immediately after that brief peak, an equally powerful selling panic sent GameStop shares back down below $50.
“That wild and crazy round trip first created $30 billion in new paper wealth, and then obliterated it … all in the blink of an eye.”
Eric’s take? Be very wary of any mania, whether it’s from Elon Musk, Reddit, or anybody else.
And don’t let the craziness distract you from the fundamentals of investing and markets, whether it’s 24 men under a buttonwood tree starting the New York Stock Exchange or a tweet that spreads around the world in seconds.
Here’s Eric again:
“The stock market always offers measures of both risk and reward, although not always in equal doses.
“That’s why it is always essential to focus on both sides of the investment proposition, no matter how manic or depressive stock market conditions may be.
“Here in Smart Money — and in my paid services, like Fry’s Investment Report — we maintain a consistent focus on the inseparable connection between risk and reward.
“Obviously, we want as little of the former as possible, and as much of the latter as possible. That’s called ‘asymmetry’… and it is an essential facet of successful investing.
“Online communities like WallStreetBets do not alter the imperative to insist on favorable risk-reward propositions. They simply add a new wrinkle.”
Editor, Smart Money
P.S. Lies, Lies, LIES!
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On the date of publication, Dave Gilbert did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.