Avoiding the Ticking Time Bomb - GameStop
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Back in the late ‘60s or early ‘70s, when I was a kid growing up in the Pittsburgh suburb called Murrysville, Milton Bradley came out with this great toy called “Time Bomb” – think of it as a mechanized version of that kids game “Hot Potato.”
I had one myself – my folks gave it to me for my birthday or Christmas one year. It was black, about the size of a duckpin bowling ball, and reminded me of the cartoonish “time bomb” you’d see Wile E. Coyote use in his never-ending chase of the Road Runner. Inside was some sort of clockwork mechanism: The red “fuse” topper was the winder; once started, you could feel the “tick, tick, tick.”
And you’d toss it back and forth until the bomb “went off” with a gigantic “click.”
If you were holding the Time Bomb when that happened, you lost … you know, you were dead.
Kind of like the last person to hold a meme stock.
Tick … tick … tick.
Meme-Stock Mania 2.0
Meme stock mania is back.
The last round in 2021 – highlighted by the GameStop Corp. GME 0.00%↑ short squeeze and the emergence of the r/wallstreetbets crowd – has been likened to the Occupy Wall Street movement … a moment in time where everyday retail investors delivered a solar-plexus punch to plundering institutional players.
In fact, Reddit co-founder Alexis Ohanian characterized it as “a chance for Joe and Jane America – the retail buyers of stock – to flex back on those hedge funds.”
That romanticized view was solidified by such future offerings as the September 2023 flick Dumb Money (Disclosure: As an Amazon Affiliate, we may earn commissions from qualifying purchases on Amazon.)
And, now, with the Great Return of Roaring Kitty, Keith Gill, GameStop and Meme-Stock Mania Redux, we’re navigating what lots of experts see as “Round Two.”
Conceding this probably isn’t a popular view, I’m not excited, romantic or bullish about GameStop or its meme-stock brethren.
Remember, I’m writing for regular retail investors … everyday folks who work hard for their money … want to invest it … to see it grow … and build actual wealth.
So, with those folks at heart … I watch the whole GameStop Saga 2.0 … and I listen.
And what I hear is …
Tick … tick … tick.
F-BOMBS
This all got rolling anew on May 12 – a Sunday – when an X account associated with Gill posted a picture of a man leaning forward in his seat, the first post in three years.
The next day, demand for GameStop and other meme stocks zoomed – so much so that E*Trade’s systems crashed and the brokerage platform had to invoke “emergency trading procedures” (which included handwritten orders … I remember those days).
Gill (who goes by the F-bomb moniker of “DeepFxxxxxgValue” on Reddit Inc. RDDT 0.00%↑ ) appears to have followed that meme post up by sharing a screenshot of his portfolio – which held a lotta GameStop shares and call options. In fact, according to the latest reports, that screenshot tells us the meme-stock magnate holds 5 million shares of GameStop and 120,000 call options with a strike price of $20 that expire on June 21, purchased for about $5.68 each.
“UN-VESTING”
Meme stocks are just the latest “flavor-of-the-month” version of the “don’t-do-this” speculations we’ve been seeing for years.
Heck … that we’ve been seeing for centuries.
You have Tulip Mania … and the South Seas Bubble.
You’ve got penny stocks (name your time frame … it’s a “repeat-offender” frenzy that goes back to the “bucket shops” of the late 1800s … that returned ahead of the Great Crash of ’29 … and I covered outbreaks as a reporter in the 1980s and 1990s).
You had the sketchy companies that emerged at the end of the dot-com era … the blockchain mania of 2017-18 … the NFT and junk-crypto offerings of 2021 and 2022 … and the SPAC debacle (so-called “IPO 2.0”) of 2022.
I’m not talking about bubbles, per se.
I’m talking about another “F-Bomb” – an investing-terror trifecta you might refer to as FIFO/FOMO/FOFS. As in:
FIFO – first in … first out.
FOMO – fear of missing out.
FOFS – fear of feeling stupid.
You see, some folks do make money in these speculatively questionable vehicles – the original, or “first in” investors.
They buy in … the chatter begins … the “sorta-connected” money folks get in next … and the price of “Asset X” or “Stock Y” starts to zoom …
The scuttlebutters … the influencers … then the mainstream media … catches on …
The retail investor … with their hard-earned bucks that just aren’t “earning enough” … see this “shortcut to wealth” … and truly fear missing out …
They buy in … not understanding it’s nearer the end of something than the start …
And when the price collapses (after the FIFO crowd is long gone) … they first bank on “hope” and hold on … and they also hold on (and don’t seek help) for fear of feeling stupid.
Granted, it doesn’t always work this way. But I’ve been doing this for 40 years … and it plays out that way more often than not. Even if I’m wrong here in the short term, stuff like this just isn’t a high-probability approach to running your own money over the long term.
Stuff like this in the past hasn’t been an “investment.”
They’ve ended up as “unvestments.”
Will it play out that way this time?
We’re already seeing some worrisome developments.
E-Trade (now owned by Morgan Stanley) was reportedly talking about banning Gill from the trading platform over market manipulation concerns, The Wall Street Journal reported Monday. I still remember the Robinhood Markets Inc. HOOD 0.00%↑maneuverings last time around … and have to wonder what’s next here.
And I keep hearing that sound.
Tick … tick … tick.
Just (Don’t) Do It
What really crystallized this for me – and triggered me to write this – was a Tuesday Yahoo Finance special report – “GameStop And the Meme Stock Saga: Opening Bid Investor Guide,” in which a trio of experts explore the meme-stock frenzy.
The descriptor of better than 50 words says these three “discuss how investors should go about investing in the polarizing company that is GameStop $GME (and if they should at all!) and break down the approach to trading in meme stocks. This is your ultimate 24-minute guide to building and not losing wealth in some of the most volatile, confusing stocks in the entire market.
Hell’s bells …
You folks keep hearing me say things like “I’m intentionally oversimplifying this” – because I understand that the more complicated we make our money moves, the more likely we’ll make a mistake … or abandon a really good plan altogether.
A series of mistakes … exacerbated by knee-jerk strategy changes – and you’ve quickly shifted from Wealth Builder … to Wealth Killer.
So I don’t need 24 minutes.
And I definitely don’t need 50 words.
When it comes to meme-stock “strategies,” here’s the only one you need.
Just … don’t … do it.
Or, if you’re one of those folks who (like me) wants to adopt healthier habits, here’s another tip.
Take up running … in the opposite direction.
Listen to your logic … it’ll tell you that I’m right.
And if you can’t hear that, then turn off the TV, put down your phone … and listen carefully.
You can hear it.
Tick … tick … tick.
Be Wiley … NOT WILE E.
There are things that bother me about “MemeStock 2.0.” For one, it’s very different this time around … more mercenary, less a “movement.”
Is it even really Keith Gill? Why would he come back? There’s lots of money involved.
Lots of worrisome questions = reasons to steer clear.
Don’t be the “Greater Fool.”
Don’t blow yourself up.
I believe that you find the best longer-term storylines and then dig down to find the best stocks — shares of the companies that are the biggest beneficiaries. I’m talking about big storylines like:
The “New Cold War” (Special Report No. 1 and Special Report No. 2).
The “Next Blockbuster” in biotech.
The AI Era.
Special Situations (for instance: silver).
And I’m working on others, too.
Our game plan as Wealth Builders is to identify the very best “Stock Picker’s Market” opportunities, and “accumulate” our way into desired positions. Unlike Jake, we don’t fear market selloffs — we welcome them.
One brand-new example that I just brought to all Stock Picker’s Corner (SPC) readers a week ago is cybersecurity specialist CrowdStrike Holdings Inc. CRWD 0.00%↑.
On Tuesday, the company’s first-quarter report was a “Good/Better/Best” moment.
It beat on earnings. It beat on revenue. And it boosted its full-year guidance.
But as part of a longer storyline, we have a longer time frame.
Longer time frames get you around short-term mistakes.
And it puts some security-enhancing distance between you and that sound …
Tick … tick … tick.
I’ll be back tomorrow with our “Substack Trilogy” on Apple Inc. AAPL 0.00%↑ ahead of its Worldwide Developer’s Conference on June 10, which is being labeled as “the most important event for Apple in over a decade” by Wedbush analyst Dan Ives.
See you then.
