Okay, as I write this, a small group of individual investors have used a page on Reddit to get together, organize, and drive the stock price of GameStop (ticker: GME), a company which has been compared to Blockbuster Video when video streaming services were starting to gain traction with broadband wifi entered regular home use. It has gone from ~$20/share to nearly $500/share, until a few brokers such as TD Ameritrade and Robinhood limited purchases in this stock.
This has been done by the individual investors to harm big hedge funds which placed large short positions on the stock, which means they sell without ever buying, thus making money when it goes down, and losing money when it goes up, as short-sellers will eventually have to buy to cover and close out the position. It’s “buy low, sell high” in reverse order, basically.
My opinion – stay away from it. First, the title of my webpage and blog is “DECADES to Wealth”, so get-rich-quick schemes are pretty much against our core beliefs. That completely aside, if you haven’t already started to play the GameStop stock game (pun – ha!), at this point it’s essentially gambling. No one knows where it will go in the very near future. Sure, in the LONG haul, it will probably go down, and down substantially, but could you create a short position today and hold on if the Reddit users succeed in further forcing the stock price up? Or, if you bought and it went down, would you know when to get out? Would you have the willingness to admit your mistake and close the position and move on? Everyone says “yes”, but in honesty, you just don’t know.
A couple of things: (1) IMO, the long-term prospects of GameStop are very poor, primarily as many gamers are buying their games directly from console makers’ sites (for example, the new PS5 has a console option that doesn’t even have a CD-drive, so it won’t accept physical game disks); and (2) someone is going to be left holding the bag when all of this is over. Sure, some people have made money with this, and some have lost, and the general feeling is that the Wall Street “fat cats” have lost and “Joe six-pack” has won, but that’s a done deal. The stock price is at whatever the buy/sell is at this moment.
What should you do NOW? If you don’t have a position, avoid it. Watch it. Laugh about it. Whatever. But avoid it. At some point, someone will buy at the very peak/high of this stock before these individuals move on, but can you be sure it isn’t you when you make that initial buy?
I heartily endorse having some of your portfolio in riskier assets, and in a percentage of your total portfolio that decreases as you approach retirement age, but there are much better investments than this. Buy Tesla, or Carvana, or Bitcoin, but not this. Where GME is going and when is completely unknown.
DECADES to Wealth 