If you’ve read my article on ‘Money Movies You Should Watch’ (check it out below if you haven’t), you’ll have read about The Big Short. Well shortly after I wrote that article, a new movie, called Dumb Money, was available on Netflix.
Dumb Money is supposed to be like this generation’s Big Short, as it explains the story behind the GameStop short-squeeze and the controversy surrounding RobinHood and hedge funds (check out my article on RobinHood below).
Essentially back during the pandemic, lots of retail investors got behind certain stocks from companies that were basically in their flop era (think AMC, BlackBerry & GameStop), in a bid to stick it to the hedge fund fat cats.
Well, it seems like we’ve gone back in time, as a lot of these ‘meme stocks’ (aptly named because a bunch of people hyped them up on then Twitter, now X) have seen a rise over 100% in some cases, with the most popular meme stock, GameStop, rising 180% in just five days.
So why is this happening again? Believe it or not, it’s because @TheRoaringKitty, the man behind the last GameStop rally…tweeted a picture of a guy leaning forward…to me this just proves my point of a speculative asset class, but let’s investigate this story a little further.
Keith Gill, AKA Roaring Kitty, started posting his opinions on GameStop back in 2019 and made a tonne of money off of this stock when it hit a historic run. I highly encourage you to watch the movie on Netflix, as it explains the situation perfectly, but he got into a lot of trouble for possible stock manipulation and insider trading. Although the Securities and Exchange Commission released a 45-page report that acknowledged that “People may disagree about the prospects of GameStop and the other meme stocks” and did not indicate that any market manipulation had occurred, it saw the decline of meme stocks, to where most of them pretty much faded into obscurity.
His tweet, to many, signified Gill’s comeback, and over the past few days we’ve seen many X users rally behind him, and GameStop, once again. There’s even been some famous people backing Roaring Kitty & GameStop, notably Andrew Tate. I don’t know about you, but I’m not going to listen to Andrew Tate for financial advice…in fact I’m not going to listen to him for anything!
So, does this mean that we should be investing in this and other meme stocks? Is this the mother of all short-squeezes? There has been so much volatility seen in GameStop (as much as it was in 2021), that many platforms have actually halted trading on the stock, which is very reminiscent of the last time that RobinHood did this, which ended the rally, and was later discovered that it was due to RobinHood having a conflict of interest with some of the hedge funds that were shorting GameStop. Exiting a short position, which a lot of these hedge funds were forced to do, means that they had to buy the stock to exit, pushing the stock price up even further, essentially creating a cycle of pushing the stock up.
But to be honest, we haven’t seen a turnaround in AMC’s, BlackBerry’s on GameStop’s business models as of late, these still aren’t popular companies, we aren’t all going to AMC cinemas and buying BlackBerry phones all of a sudden, which leads me to think that this once again is all still quite speculative. There’s a huge gap between what these companies are trading for and where they are today, which means that we have seen a separation from the stock and the business itself.
I don’t see a repeat of the short squeeze back in 2021, mainly because there isn’t as much short interest as there was back then, mainly because short sellers are either burnt or spooked by what happened back then. Shorting is a high-risk strategy, and many short sellers probably see GameStop to be even higher risk than it was before.
In my honest opinion, market activity and volatility can get very complicated, and where there’s a lot of commentary and speculation around it, meme stocks historically haven’t been as successful as many initially thought. Many companies have experienced hype and speculation around their stock, and have since gone bankrupt, like Bed, Bath & Beyond, and WeWork. The ‘diamond in the rough’ are few and far between, and we have seen many fads in recent times, which is only exacerbated by social media and influencers; many will jump on the bandwagon of hyping up a stock for short-term gains. I would highly recommend my articles on social media & influencers and how they are detrimental to finance, because it’s scenarios like this that perfectly demonstrate my point of view.
All in all, I still stand by the fundamental concepts and principle of investing, such as knowing your risk tolerance, investing for the long-term, and taking the emotion out of investing. But what do you think?
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