Coordinating on chat forums, social media and messaging apps, hordes of day traders are coalescing and piling into stocks in unison to make a quick buck.

• Elon Musk tweets, "I kind of love Etsy," and Etsy Inc.'s shares surge 9% before the stock market opens, as countless small traders buy — even though nothing has changed at the company; 
• AMC Entertainment Holdings Inc., back from the brink of bankruptcy, skyrockets more than 180% this morning on a buying frenzy from a throng of small traders;
• Short-sellers bet that GameStop Corp. is bound to go down, and traders rally on reddit's WallStreetBets forum to buy the stock together. That drives the thinly-traded stock's price up, triggering a "squeeze" in which the short-sellers have to buy shares to cover their losses.

The amateurs are making a killing.

It's as if a bunch of couch potatoes watching a Los Angeles Lakers basketball game on TV belted down their beer and nachos, barged onto the court at the Staples Center — and proceeded to block LeBron James's shots and mercilessly dunk on Anthony Davis.

What's going on here?

Amateur investors have always had advantages over professionals: They can't get fired for underperformance, don't have to incur commissions and other fees, and don't have clients who give them money (and take it away) at the worst time. They can invest for the long run and ignore the short term.

Now, however, amateur traders are asserting their advantages, too. They can communicate instantaneously, band together by the thousands and trade for free. Professionals, including short-selling hedge funds, are legally restricted from colluding with each other and incur much higher brokerage costs than individuals do.

A flash mob of individuals trading in sync can drive a stock way up or way down even if each trader commits only a few dollars. If a stock is thinly-enough traded, the little guys can overwhelm big institutional funds that are normally far more powerful.

I've started to liken the new trading mobs to a murmuration of starlings. If you've never seen one of these swirling vortexes of birds in the wild, watch this video (sound on!) and you'll understand. Clouds of birds cover the sky by the thousands, shifting direction in swift and coordinated bursts, evidently to confuse their predators.

I'm not sure how long this can last: Hedge funds and other institutional investors are going to use all their resources to try to outwit the swarms of starlings. And a bear market could burn many of the newbies so badly that they quit the game altogether. For now, though, these wild gatherings of small traders may well set the market's direction.

Neuroscientists have found that particular neurons in the brains of people communicating about the same topic or working on a common task tend to activate at the same time. The more coherent the narrative, the more each person's brain activation will "mirror" or be "coupled" to the brain responses of other people in the group. Such groups tend to build stronger social cohesion among themselves and greater hostility toward outsiders. In economics lingo, people derive both social learning and social utility from this kind of interaction: They get information, and they get the reward of feeling they belong.

No wonder, at a time when pandemic lockdowns have left so many of us feeling isolated and lonely, financial flash mobs have spread like wildfire. Social media, by design, focuses their attention and whips them up into a frenzy.

Unfortunately, as I warned in my last column, "Every Warren Buffett Needs a Charlie Munger": 

Joining an unlimited group of people you know little about, who may all share an itch to get rich quick, can lead to imitation rather than education. It can become an “amen corner” without walls, an almost infinite echo chamber.

If you're a trader, you'll want to follow — or, better yet, anticipate — whatever these flash mobs do next.

If you're an investor, you should steer clear. Don't be tempted to do what everybody else seems to be doing, or to try being something you're not.

Be well and invest well,

Jason

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Here are some of the best things I found over the past week outside The Wall Street Journal:

• GameStop's stock price went wild after a flash mob that has been building for months reached critical mass, shows Institutional Investor
• A mutual fund, Baron Partners, had 47% of its assets in Tesla Inc. stock as of late December, says Morningstar
• Why one of the smallest and most obscure ETFs in existence has lifted off like a rocket, by MarketWatch
• How economists and ordinary people think about inflation has changed drastically over time, says Andrew Elrod on the PhenomenalWorld blog
• People would rather listen to economic advice from charlatans than to advice from experts, according to four experts
• How behavioral insights and marketing ideas could encourage more people to get vaccinated, by the New England Journal of Medicine
• The long-term history of pandemics suggests they may lead to policies that reduce social and income inequality, say two economists

Here are some of the best things I found recently in The Wall Street Journal:

• The flash mobs knocking stock prices all over the place are driven by reddit memes and wild options trading, says Alex Osipovich
• The battle between flash mobs and professional investors is turning nasty and personal, report Greg Zuckerman and Geoff Rogow 
• As individuals plunge into the market, options trades are shattering records, Gunjan Banerji shows
• The newest hot institutional investment is ocean vessels that service offshore wind farms, say Julie Steinberg and Joe Wallace
• China is taking control over Ant Group, the financial giant backed by Alibaba founder Jack Ma, reports Jing Yang
• The U.S. doesn't have to be us-versus-them, says contributor Stephen Smith; patriotism should be about civility, virtue and self-criticism
• Bitcoin isn't just good for traders, drug dealers and money launderers; the computers that "mine" cryptocurrency can also heat your vegetable garden or warm a chicken coop, explains Sarah Needleman

If everybody says, ‘The Devil take the hindmost,’ the devil soon works his way to the head of the line.

— John Train