In case you don’t consume financial media as regularly and voraciously as I do (read: doom scrolling Twitter all night looking for interesting market narratives), then you’ll have to take my word for the fact that there are some really weird things happening in markets right now. In no particular order, those weird things include:
The insatiable demand for SPACs
One trillion shares of penny stocks traded hands last month
The insane performance of anything EV related
The fact that the lady from Tiger King was able to pump a penny stock up 250% in like a day or two
The lady from Tiger King...
It traded a billion shares!
But anyway... nothing has captured the collective attention of the financial media lately more than the strange saga of GameStop.
I’m going to stop here and assume that you already know what happened with GameStop. If you don’t, this is a pretty good explainer.
Now that you’re up to speed…
I don’t really have much to add. This whole story is pretty bonkers and serves as yet another great reminder that we’re living through an extraordinarily odd moment on a lot of fronts.
It’s also a great reminder that, as I’ve written about extensively before, no one knows anything.
There are, however, a few things I think I know...
So without further ado, here are some things I think I know (The GameStop version)…
Get rich quick schemes usually don’t work. Except sometimes, for a very select group of lucky people, they work extraordinarily well. I was that guy once… trust me, your luck won’t last. In this case, a bunch of people bought GameStop and made crazy money in a really short period of time. There was also a 60% intra-day drawdown yesterday alone… which means someone lost 60% of their investment in the matter of couple of hours (that’s the whole “usually don’t work” part).
Markets move quickly. Depending on your time horizon, that can be a good or a bad thing. If you’re trading for tomorrow, you’re probably in trouble. If your horizon is longer than a few years, it probably doesn’t matter much.
Most of the time, nothing makes sense. The GameStop story isn’t the first time we’ve seen this movie and it won’t be the last. About 12 years ago, Volkswagen grew to be the largest company in the world almost overnight due to an epic short squeeze...
But things even out over time. Volkswagen went back to being a mere mortal once people figured out what was going on. GameStop will too…
And history still rhymes. The Volkswagen trade was insane at the time. Then Tesla came along and basically did the same thing over a longer period of time. And now it’s GameStop’s turn. The only difference now is GameStop did it quicker.
FOMO matters. The newsletters of the 1980’s became the chat rooms of the late 90’s… which eventually became r/WSB today (if you don’t know what that stands for then just ask me). All of this is just raw human emotion masquerading around as something more profound. Everyone wants to be invited to the party but no one wants to be the one left without a chair when the music stops playing… the friction that exists between those two things is what creates volatility.
Valuations matter too… just not right now. Don’t try to make sense of any of this. It’s all insane. But trust me on this one… valuations still matter in the long run. The price that you pay for an asset holds a strong correlation with your expected returns. But it needs time to get there.
People love a good story. Whether the explanation is delta hedging, fundamental changes, or something different entirely, it’s human nature to search for a reason why something unexpected is happening. It’s tough to know with any type of certainty what to attribute the move in GameStop to, but that doesn’t stop the story machine from churning.
Context is everything. If you bought GameStop at the start of the year, you are up an astonishing 319% in a little less than four weeks! But if you bought GameStop at the start of the day yesterday, you are down 21% in less than a day! So… is GameStop at the start of a rocket ship ride higher or in the process of crashing? Your answer probably depends on when you got in.
There’s always someone out there doing better. It’s human nature to compare ourselves to other people. Think your friend that bought GameStop is doing well? Her 319% return this year pales in comparison to the guy that was smart enough to buy Gritstone Oncology (up 506%). And back to the FOMO carousel we go…
But you should be benchmarking against yourself. Are you sticking to your plan? Are you focusing on what matters to you long term? Those are the questions to be asking yourself now.
YOLO! That’s the rallying cry for the r/WSB crowd when they put on a big trade. It stands for “you only live once”. This is very true… so make the best of what you’ve got. Whether that’s putting on a big trade or being content watching from the sidelines, make sure to enjoy the ride. We only get it once.