While Wall Street was asleep, WSB became a real player. Here is how:
Here is likely the breakdown of how outsiders thought of WSB (if they thought of us at all):
- An average retail investor is conservative, buys ETFs, and doesn’t trade with options or leverage.
- A $1m portfolio would rarely have more than $50k (5%) in any singular “speculative” stock.
- We had about 500,000 users, assume $10,000 per user.
- This gives WSB $5B in assets under management.
- If you assume the average retail investor only invests 5% into any singular play, this would give WSB $250m in buying power for any given play.
- Assume a finite and largely fragmented ecosystem here where at most any play gathers 10% of our users behind it.
- This would make the total buying power of WSB on a single play roughly $25m.
Assumed buying power: $25m, basically a small family office, not even a blip on the radar.
Here is the rub. That math was completely broken:
- YOLO: Our user base is willing to risk 10%, 20%, 50%, 100% of their portfolio on a single bet. Assume the average user will push 25% of their portfolio on a signal play.
- This immediately gives us 500% the buying power of average retail traders. We just went from $25m to $125m in buying power.
- We use options and leverage. Assume an average of 500% more blended leverage than the average retail investor (mainly based on options more than margins). This takes our buying power from $125m to $750m for a single bet.
- Growing Ecosystem: a strong play on WSB is/was not limited to our user base. More people outside of WSB joined in, growing our numbers from 500k to over 5m people. Assuming more fragmentation: a 5% engagement rate on a single play grows our potential dry powder for a single event to $3.75 Billion.
Even $3.75 Billion may be conservative with some institutional investors following WSB
TLDR outside investors likely thought our potential buying power was $25m, in reality, it was off by 15,000% and it was probably $3.75+ Billion