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GameStop — pandemic stock darling and the embodiment of a meme stock — surged again recently. This price hike took place following trader Roaring Kitty, who also fueled the 2021 rally, posting about it.
In turn, the stock skyrocketed 200% on May 10 according to CNBC, yet as of market close on Friday, May 17, the stock was down 19.7%.
“It feels like 2021 all over again,” Jaspreet Singh, CEO of Briefs Media and host of “The Minority Mindset Show,” recently said in a YouTube video.
Jaspreet Singh Staying Away From GameStop Stock
Singh added that he is not getting involved in this rally, and urged his viewers to do the same.
Instead, he recommends sticking with your strategy and ignoring “the shiny and exciting stuff.”
“I want you to build long-term wealth because that’s how you become actually wealthy, that’s the proven way that most people will become wealthy in this country — it’s by investing your money for the long term. It’s not the most attractive thing to do, and not the most appealing thing to do — especially when you have these huge rallies and these meme stocks,” he added.
Not the Time for FOMO
Stoy Hall — CFP, founder and CEO of Black Mammoth — said he “wholeheartedly agrees” with Singh.
“Meme stocks or any stock that has a major run on it, is not the time for FOMO to kick in,” said Hall. “The everyday person runs the risk of ‘holding the bag’ — meaning when the stock tanks, the professional traders have made their money and you bought them out.”
Then the stock tanks — and you are stuck with a share price much higher than the current value because you had FOMO and didn’t know how, or when, to get out, he said.
“This is a classic movement in most stocks, where institutional/professional traders will run up a stock then sell out while making their money and letting retail [investors] hold the bag,” he added.
Too Perilous To Trade
As Peter C. Earle — senior economist with the American Institute for Economic Research — explained, the incredible price action in the meme stocks is driven by herds of short-term retail investors plowing into low liquidity, usually poorly regarded equity issues.
“Unless one were to have a very, and I mean very, strong opinion about one of those stocks accompanied by a long-term investment horizon, I think they’re mostly to be avoided,” he said.
He noted that the whole reason many of those firms have become financial battlegrounds is their questionable viability.
GameStop Stock Price
Indeed, on May 17, GameStop entered into an agreement to sell 45 million shares, according to a Securities and Exchange Commission (SEC) filing, which sent the stock down 20%.
And in a separate May 17 announcement, the company said it expects net first-quarter sales in the range of $872 million to $892 million, compared to $1.24 billion in the same quarter last year.
“Even more perilous is trying to trade in and out of them to catch the big moves on a day when the meme stock hordes are active,” said Earle. “There’s no edge to be had in guessing what a $10 stock that shoots up to $50 will do next. From one price change to the next is indiscernible from randomness.”
At least one other expert echoed the above sentiment, arguing that ultimately, GameStop’s valuation is not based on sound fundamentals, “but more like a confidence trick.”
“Some shrewd traders may still yet profit from the hype, but this will come at the expense of other, less-experienced traders,” said Asher Rogovy, CIO for Magnifina. “After all, stock speculation is a zero-sum game over the short-term.”
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