In today’s Money Morning…Wall Street gets a wake-up call…meme stocks aren’t going away…they only care about winning…and more…
For many investors, the whole ‘meme stock’ saga of 2021 was a bizarre sideshow.
The GameStop short squeeze not only shocked Wall Street it also shocked the financial world. For the first time in a long time, it showcased a new form of people power in markets.
From an outsider’s perspective, it was a fascinating look into the microcosm of a new wave of investors — a glimpse at just how effective retail traders can become when banded together.
Now, don’t get me wrong, I’m not lauding the Reddit traders as some benevolent force.
A lot of this story is still extremely funny to me purely because of how absurd it is. And a big part of that is thanks to the still-inflated share price of GameStop, in my opinion. I don’t share their favourable outlook on a bricks-and-mortar company trying to turn itself into a digital pioneer.
But hey, I could be just as wrong as the hedge funds that lost to these armchair traders.
After all, the only reason I’m talking about this subject today is because the retail investors won…
Wall Street gets a wake-up call
Yes, Melvin Capital, the ‘evil’ hedge fund who waged a war with these investors, is no more.
After more than a year of trying to win the meme stock war, it seems Wall Street has lost. Gabe Plotkin, the founder and CEO of Melvin, confirmed the news earlier this week. His US$7.8 billion fund is now done and dusted, returning whatever capital he has left to his clients.
This turn of events certainly doesn’t surprise me, but it’s the implication that’s far more interesting…
Plenty of the online forums who fought so hard against Plotkin are now cheering his demise. They’ve now seen that they can stand up to Wall Street and actually win.
Some outlets are suggesting that fact alone may have amplified yesterday’s big sell-off. I’m sure it certainly didn’t help abate it.
The real question now is whether GameStop was truly a flash in the pan or not. Now that these online investors have had their power and influence validated, will we see it used again?
Maybe.
Maybe not.
Getting enough people to rally behind one idea and stick to it certainly isn’t easy. But the fact that it has now been proven possible is a big enough threat on its own.
It’s like a new type of activist investor, just on a scale that involves masses rather than individuals.
For any hedge fund looking at long or short opportunities, these meme stock traders now need to be taken somewhat seriously. After all, nothing bands strangers together more than a common enemy.
But that’s Wall Street’s problem to worry about, not ours.
What you and I need to consider is what this meme stock victory means for everyday investors.
Meme stocks aren’t going away
The big takeaway from Melvin’s demise, in my view, is that it will mean meme stocks are here to stay.
Even in the midst of this current bear market, by outlasting Melvin, GameStop has shown that meme stocks can be lucrative. And I’m not just talking about short-term ‘pump-and-dump’ style lucrative.
GameStop has managed to hold on to its relatively inflated valuation for over a year now. Sure, it’s not trading at the insane US$300 per share price point that it did at the peak of this story, but it’s still well above its pre-meme status.
Does that make it a ‘good’ investment?
No, not in my opinion.
But that’s what speculative stocks are all about. It’s the subjective value in the eye of the investor that matters. Like I said earlier, the company is trying to transform itself and its business model. If successful, this transformation may one day warrant the hype that surrounds the stock.
What it proves, though, is that the appetite for speculative stocks — with good narratives — is seemingly stronger than ever. This new generation of day traders don’t care about the fundamentals or the facts and figures. They only care about winning.
It’s a great example of an ‘axis shift’ that has influenced markets for the past two years. And even now, as sentiment is turning against these riskier investments, I suspect it will have some staying power.
Again, though, I wouldn’t be trying to put any of your own capital into these companies right now. Instead, if you’re looking for an equally contrarian way to beat Wall Street, I’d heed Jim Rickards’ advice…
Because in Jim’s view, there is another major axis shift in motion, one that likely won’t benefit these meme stocks. But if you know where to look and what to look for, there are opportunities that could be just as lucrative as some of these past speculative wonders.
You can read all about Jim’s ideas and the sort of portfolio he’d put together right here.
After all, if there is one lesson we can all learn from the GameStop saga, it’s that markets will never stop surprising us.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
