Gaming GameStop? Read This First
Markets don’t run on logic. In fact, by purchasing shares of GameStop, you're betting that logic won’t prevail.
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On Monday, I had lunch with a friend, an experienced trader, at an Italian restaurant in my neighborhood. Immediately after ordering, the conversation turned to GameStop GME.
“I bought a few shares,” he told me. “Not enough to get hurt, even if it goes to zero.”
“It could go to $200,” I replied.
“True,” he replied. “Or, it could go to zero, which is about what it’s worth.”
My friend is right — the true value of a share of GameStop is closer to zero than $200.
Fortunately for him, markets don’t run on logic. In fact, by purchasing shares of GameStop, he’s betting that logic won’t prevail.
In case you missed it, Keith Gill, better known as Roaring Kitty, returned to X after a long absence. The last time Gill posted as Roaring Kitty, the social media site was known as Twitter.
As retold in recent film Dumb Money, Gill was partially responsible for the ascent of GameStop starting in 2020, which started the “meme stock” craze.
On Sunday, Gill posted an image of a man sitting in a chair, who suddenly notices something is happening. Perhaps that man was noticing that GameStop was already on the move.
GameStop was trading near $11 at the start of this month (point A), and by Friday, the stock touched $20 (point B). The move occurred on heavy volume (shaded yellow).
On Sunday, Roaring Kitty posted the man in the chair, without comment.
This was followed on Monday by a series of posts, consisting of short videos featuring themes of awakening. At one point, GameStop soared by over 100%, on its highest volume in years.
Regarding Roaring Kitty’s posts, at no point was GameStop or any other company mentioned. Traders inferred that GameStop was the subject, due to the reputation of the author.
The question on everyone’s mind is whether a massive run in GameStop is about to occur. I hate to spoil the fun, but I believe it’s unlikely that we’re about to see a repeat of the heady days of 2020/2021.
GameStop’s initial run, and Roaring Kitty’s rise to fame, occurred during a pandemic. People were sitting at home, looking for something to do. Many of those folks had just received stimulus checks, and used them to open trading accounts.
Roaring Kitty lit the match, but it was the combined focus of millions of out-of-work newbie traders that started an inferno. Conditions have changed, and that scenario is unlikely to be repeated.
For this reason, I wouldn’t count on GameStop having a massive run. The stock could go higher for a while, but fundamentally, nothing has changed.
In 2017, GameStop had 6,600 locations. Over one-third of those stores have closed.
My friend has the right attitude — he’s playing small (for him), so he has no fear of loss. He just wants to enjoy the experience and have fun. He will be fine, regardless of the outcome.
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At the time of publication, Ponsi had no positions in any securities mentioned.
