Don’t look for patterns to predict the next breakaway stock in the recent retail-investor-led rally, because there isn’t one, according to the founder of the Reddit message board largely responsible for some recent stock spikes.

“It’s certainly not by looking at fundamentals,” Jaime Rogozinski, the founder of the group r/WallStreetBets, said in an interview on Thursday.

“Just like with the internet, there’s no controlling as far as what ends up getting traction and not getting traction.”

The online community, which is now 4.6 million members strong, has focused its attention on heavily-shorted stocks that has led to a short-squeeze of epic proportions and wreaked havoc on institutional investors betting against those stocks.

u can’t sell houses u don’t own
u can’t sell cars u don’t own
but
u *can* sell stock u don’t own!?
this is bs – shorting is a scam
legal only for vestigial reasons

— Elon Musk (@elonmusk) January 28, 2021

Reminder that short-and-distort sellers don’t build anything. Companies build things. The people in them build things.

— Tobi Lutke 🌳🌲🛒🕹 (@tobi) January 28, 2021

Interest from these non-traditional investors resulted in some baffling moves for a seemingly-random assortment of companies: GameStop Corp., BlackBerry Ltd., AMC Entertainment Holdings Inc., Tootsie Roll Industries Inc., and even BB Liquidation Inc., the remaining shards of the once-mighty Blockbuster Video chain.

“There doesn’t seem to be much of a formula,” Rogozinski - who is no longer involved with the day-to-day functioning of the forum - said of the group of outperformers. “There are some common denominators from the stocks that get a lot of attention, specifically now with GameStop. I don’t know exactly what it was that made it spark. It could have been luck. It’s anybody’s guess.”

The group activity, along with the wild moves in the stocks they target have led some in the investing community to call for increased legal or regulatory scrutiny.

Michael Burry - made famous for his bets against the U.S. subprime mortgage market in Michael Lewis’ book The Big Short - called the GameStop rally “unnatural, insane, and dangerous,” in a tweet on Wednesday.

Others, like entrepreneur and owner of the NBA’s Dallas Mavericks Mark Cuban have praised the rogue spirit of the non-traditional investment base.

“I got to say I LOVE LOVE what is going on with #wallstreetbets,” Cuban said in a tweet late Wednesday night. “All of those years of High Frequency Traders front running retail traders,now speed and density of information and retail trading is giving the little guy an edge. Even my 11 yr old traded w them and made $”

However, Cuban told Bloomberg News that he would not be participating in the Reddit rally, saying “just not my thing.”

I got to say I LOVE LOVE what is going on with #wallstreetbets. All of those years of High Frequency Traders front running retail traders,now speed and density of information and retail trading is giving the little guy an edge. Even my 11 yr old traded w them and made $

— Mark Cuban (@mcuban) January 28, 2021

Rogozinski said that those tasked with applying traditional investing rules and regulations to individual traders in the digital age may have a tough road ahead.

“I don’t envy the SEC right now,” Rogozinski said. “I do not envy FINRA (Financial Industry Regulatory Authority) because they have a very difficult job on their hands right now because the laws, the way they’re written, make this situation tricky. They weren’t written for the age of memes and viral videos.”

One prominent Toronto lawyer said regulators aren’t likely to get involved if laws aren’t being broken.

“The regulators don’t regulate anything outside that illegal activity,” Susan Kushneryk, a partner at Hansell LLP, said in an interview Wednesday. "And, they don’t regulate what investors say to each other about what’s going on with any particular stocks, or their trading intentions or musing about trading. So, it really comes down to whether there’s any illegal activity or any manipulation.”

Rogozinski said that it would be a different story if the group’s moderators were involved in the flurry of recent trading activity, since it would blur the lines of their protections under Section 230 of of the Communications Act of 1934, which separates internet service providers and web sites from the information disseminated on their platforms.

Regardless, Rogozinski sees someone stepping in to manage the outsized volatility in the markets.

“It wouldn’t surprise me that if the regulators aren’t able to do something that the government’s going to step in and, going forward, they’re going to try to contain some of this.”

- with files from Ian Vandaelle

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