Discord is the new Morningstar for retail investors

At least one researcher says the social messaging platform contains sound investing advice — but you have to know where to look.

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a senior reporter and certified personal finance counselor at Policygenius, where he covers insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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As a financial advisor and founder of Black Bishop Financial Group, Nathan Bender is licensed to provide investment advice in Washington state. It’s safe to say he doesn’t need much help when it comes to investing.

Still, he says there’s a lot to learn from investing communities on Discord, an instant messaging platform that first became popular among gamers. While some Discord servers are filled with people hawking cryptocurrencies, others have high-quality discussions about investing and personal finance, with experts like Bender answering questions for newbies. In fact, Discord is where he met his biggest client.

“You can find value from so many people” on Discord, Bender says. “I’ve met people who are obviously not registered planners who know so much more than me in many areas, and I’ve learned incredible amounts from them.”

Now, at least one researcher has verified with hard data that in at least some Discord servers, people know what they’re talking about. Chaehyun Pyun, who will start as an assistant professor of finance at the University of Alabama in Huntsville in the fall, studied investing chat rooms on Discord as part of his doctoral research. [1] He found that stocks frequently discussed on Discord are correlated with positive returns. 

“It may be a good idea for investors to join these group chats to find out which stocks everyone is talking about,” Pyun says.

Why do ‘Discord stocks’ perform well?

In his study, Pyun measured the performance of the 50 most-discussed stocks on Discord from January 2020 to January 2021. He constructed a portfolio from the most-mentioned Discord stocks first, rebalancing on a regular basis as the most popular stocks changed, and then compared it to a portfolio of the most-mentioned stocks on the Wall Street Bets forum on Reddit, as well as a portfolio that mirrored the S&P 500.

Shockingly, he found that a portfolio containing an equally weighted group of stocks mentioned on Discord was the most profitable — even better than the S&P 500 — thanks largely to the small- and mid-cap stocks recommended in chat rooms. 

“It gives you an implication that maybe investors that are in these investing servers are actually putting in the time and effort to search for and investigate and uncover promising companies,” Pyun says.

One reason might be the sense of community these chat rooms foster. Because they’re chat rooms, the discussions are more conversational and personable, and there’s a social pressure to make quality recommendations, Pyun says, unlike on Reddit, where posters don’t necessarily have to stick around to defend their conclusions.

Pyun also acknowledged there’s more research to do in this area, since he studied these investments during a bull market over a relatively short period. How will investors do now that the meme stock era is over?

“The inferences in this paper are based on a period of high market certainty, so I am definitely interested in seeing how the results change in normal market periods and over a much longer horizon,” Pyun says.

Should you get investing advice from Discord?

Jim Sweeney, who works in the technology industry, got serious about trading in the early days of the pandemic, when he started working from his home in Washington, D.C. Since then, he's started lurking in a number of investing servers on Discord, but he says he would never take investing advice from any of them.

“I look at what people are trading in, and I do look at general trends,” Sweeney says. But he adds: “I’m more interested in these guys teaching me techniques and strategies than I am in them telling me exactly what to trade.”

For example, Sweeney picked up the intricacies of options trading from Discord chats. He tends to ignore people shouting about their trades and uses it more as a newsfeed, learning about the latest earnings reports and other market data.

Bender, the investment adviser, also doesn’t get specific trading advice from Discord. But he does think it’s a good place to pick the brains of other experts.

“If I know it’s a sophisticated channel, and I know there are other professional investors in there —  maybe there are huge fund managers in this Discord — I will reach out to people who are more experienced than I am in certain realms,” he says.

The key is to find the right servers and the right people in those servers. Bender spends time in the Guac Talk (associated with the Minority Mindset YouTube channel), and the Value Investors Chat servers, as well as a server associated with the r/investing subreddit, but warned that there’s a wide gulf between the best and worst servers.

“When you join a crypto Discord, it almost feels like you just stepped into a communist regime where you say anything that’s against the general dogma, and you’re just assaulted,” Bender says. “It’s brutal.”

You’ll also have to wade through bots advertising various pump-and-dump schemes. But the high-quality servers contain professional accountants, hedge fund managers, lawyers and other people with investing expertise, as long as you can find them.

“Be careful to weigh the responses and be sure to validate who you’re talking to,” Bender says. “Make sure you’re not getting legal advice from a 15-year-old who read a blog post on how mergers and acquisitions work in the Cayman Islands.”

Much of the advice in these servers is surprisingly orthodox: Put your money into an index fund and some bonds and forget about it. But you can also lead yourself down rabbit holes. Bender says he’s learned a lot about international investing from people located in other countries on Discord. 

“Find somebody who knows what they’re talking about and start drilling them for answers,” Bender says.

Pyun believes Discord servers will continue to grow in popularity for investors.

“That’s why I think it’s important to know whether these discussions are informative and beneficial for investors,” Pyun says.

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