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GameStop and AMC made national headlines for unexpected reasons as retail investors from social media website Reddit began feverishly scooping up shares in each company. While the resulting drama caused wild swings in stock prices and scrutiny against some online trading platforms, the long term impacts remain to be seen. Did “Redditors” usher in a new era of retail stock trading? Or are these so-called meme stocks just another example of financial history repeating itself?
Featured Guests
- Garrett Cummings – President, UCF Young Investors Club
- Kevin Mullally, Ph.D. – Assistant Professor of Finance, UCF College of Business
Episode Highlights
- 1:04 – Introduction
- 2:48 – Why would anyone invest in GameStop?
- 7:22 – What led to the media spotlight on $GME?
- 12:37 – Who is the group driving the run on GameStop stock?
- 14:27 – Is this a legitimate area of finance research?
- 16:37 – Historical similarities
- 20:12 – How is this run on $GME going to end?
- 22:08 – What’s the future for meme stocks as a whole?
- 28:27 – Will this still be a story a year from now?
- 31:33 – Dean Jarley’s final thoughts
Episode Transcription
Paul Jarley: Remember the E-Trade Baby?
E-Trade Baby: A lot of people are like, “Isn’t it difficult to invest in the markets?” And I’m like, “Not if you’re using E-trade. Making a big investment is as easy as a single click.” Boom. I just bought some stocks.
Paul Jarley: I think he was the first meme investor. He didn’t last long.
E-Trade Baby: Wait, why is this line going down? Oh God, it just dropped 400 points. This is not happening. Dear Lord, I made a horrible, horrible mistake. ****
Paul Jarley: Or maybe he just moved onto the social media site, Reddit [crosstalk 00:00:31] and lost hundreds of thousands of dollars trading stock in GameStop. Turns out he’s just one of many.
E-Trade Baby: Take it back. Sell, sell, sell, sell, sell. Too late. It’s all gone.
Paul Jarley: This show is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, “Is this really a thing?” Onto our show.
Paul Jarley: So GameStop has obviously been in the news a lot over the last week, and to help me understand what’s going on here, I’ve convened a panel of experts. Kevin Mullally is an assistant professor in our finance department. Garrett Cummings is the president of our student investment club and a finance major. And I pulled in our own Josh Miranda, who knows a little bit about viral marketing and maybe viral finance to have a conversation about GameStop and its short-term and long-term implications. But I want to start out with a story. When I first came to UCF, one of the first groups I met with were some executives at EA sports.
Paul Jarley: And they said to me, “We know right now we’re a company that puts the $60 box in a GameStop for people to purchase, but we know that’s about to go away. We know that a few years from now, we will have developed into something like iTunes, where people electronically download whatever the game is into their console. And we think after that, we will become a company that offers various components of games that people can download and create their own game. And we want to understand that consumer more and what aspects of the games they like and dislike, so that we can meet that market demand when it comes.” Now, I raise that story because that was 10 years ago, and EA sports knew GameStop was dead then. So when I first heard the stories about GameStop, I have to admit my first reaction was, “Wow, they’re still around? Why would anybody invest in GameStop?” Is there a legitimate reason to believe that GameStop has a future? Kevin, do you want to kick us off? I’ll pick on you first.
Kevin Mullally: Yeah, absolutely. So I did a bit of researching that question myself, actually, kind of thinking the same thing, because as you guys probably know, at certain points during this whole incident, GameStop was actually more valuable as a company, as a going entity than was Best Buy. And again, my reaction is the same as yours.
Paul Jarley: Or Delta Airlines, I think I read somewhere.
Kevin Mullally: Correct, correct. So all kinds of crazy mis-valuations, very clearly. And so I looked back into the history of it, and kind of the thing that has come out is that there are actually quite a few people that were long in GameStop, even sort of middle of 2019.
Paul Jarley: Explain long, Kevin, for our listeners.
Kevin Mullally: Oh, I’m sorry. So they had established a position where they had held a good number of shares in that company. So they were investors in that firm mid 2019, early 2020, well in advance of any of this taking place. In the argument, one of the most famous guys that had established a pretty sizeable position in GameStop was Michael Burry, who listeners may be familiar with from the movie The Big Short. He was kind of one of the guys that very famously predicted that the housing market was going to collapse. And his argument for investing in GameStop was basically that it had been mismanaged, that they had a whole bunch of cash on their books, that they had been making a bunch of bad acquisitions, and just generally had poor management and a lot of managerial turnover at that time as well.
Kevin Mullally: And his argument was that, “Look, hey, if we can get these guys to buy back their shares, we can take cash off the books and deploy that more efficiently in the market. It’s going to make the firm more valuable and the shares more valuable.” And so that was the argument for it, is that they had a lot of cash on the books. We can basically just kind of skim this thing down and take that cash and make it more valuable elsewhere. And so that was the argument for him and then several other hedge fund investors who came in later on as well to try to establish, to take some control over that firm. So the argument was potential, basically.
Paul Jarley: Okay. So that cash had built up over a number of years?
Kevin Mullally: That’s my understanding.
Paul Jarley: Okay, because I doubt they even own the real estate they’re in, right? I mean, I think there’s probably little asset there.
Kevin Mullally: Yeah, that’s probably true. What I definitely know is that the number that I saw as far as their cash holdings was like $500 million.
Paul Jarley: Wow.
Kevin Mullally: So a very sizeable amount of cash that they were just basically sitting on, or misusing in many cases.
Paul Jarley: Well, because here’s one of the first questions I would have for our two younger colleagues who are here on this podcast. Josh, when’s the last time you set foot in a GameStop? I know you’re a gamer.
Josh Miranda: I mean … so the difference in setting foot in a GameStop, maybe a little bit more recently, but actually buying something from a GameStop? It has been quite some time. It’s just most game consoles nowadays, the new ones don’t even have disc drives, so you can just download the games directly from the vendors, from the publishers. So why leave your house to check out what’s out there when you can just download it?
Paul Jarley: Garrett. How about you? Have you ever set foot in a GameStop?
Garrett Cummings: Yeah, it’s been a very long time, I must say. And being a brick and mortar company, you got to sell the best. With everything moving online, GameStop is definitely not the first place I think of when I want to download a new video game.
Paul Jarley: Right, they’re in a space where you can download things directly located in shopping malls. Could there be a company in a worse position than GameStop? It’s kind of hard to imagine, really. So it’s not surprising, I think, that some hedge funds started shorting it. Kevin, would you mind explaining shorting for our listeners?
Kevin Mullally: Absolutely. Yeah. So this is a pretty common thing that hedge funds do. So when you short a stock, what you are doing is you are borrowing those shares from somebody else in the market. You are taking them and you are selling them, in a sense, and then hoping that the stock will fall so that you can later go back and buy them to replace what you’ve borrowed, and thus you win, you make money if those shares fall. The risk, of course, is that they could also go up, and if they go up, your risk is unlimited. They could go up to infinity, theoretically, and you would lose a whole bunch of money or all of your money.
Paul Jarley: Now, just so I understand the scope of the potential loss here for the market, you can’t short more shares than are in circulation though, can you? Is it the number in circulation or is it the number authorized?
Kevin Mullally: So one of the impetuses for these, for the sort of Redditors to buying GameStop and begin squeezing these guys is the fact that the short interest was actually above the shares outstanding. In aggregate … not a single trader of course, but in aggregate, I want to say the number was 138%. So they had shorted 138% of all shares outstanding. And so the issue there becomes that clearly everybody can’t buy back the shares they’ve shorted at one time. So if you start to see the stock price increase, some people are going to be hung out to dry because they will not be able to buy those shares back to cover their position. And so it obviously can get a bit more technical when you start differentiating between shares outstanding and then the shares that are actually available to be traded. The term would be float.
Paul Jarley: Yeah.
Kevin Mullally: But long story short, yes, there was an issue here that the amount of shorting that was going on exceeded the amount of shares that were able to be traded or available to be traded.
Paul Jarley: And this got some hedge firms, as I understand it, in trouble. The question I had there is it surprises me that a hedge fund would have a significant percentage of its portfolio in a short position with a particular company. Is that unusual?
Kevin Mullally: It’s actually not that unusual. And the reason is if you think about sort of investing, one of the things that we would teach our students right off the bat is that diversification is done to eliminate firm specific risk.
Paul Jarley: Right.
Kevin Mullally: You hold a diversified portfolio to get rid of that.
Paul Jarley: Yep.
Kevin Mullally: Now, if you’re holding a diversified portfolio and you’re not really taking any firm specific risks, it’s also difficult to generate abnormal returns. You’re in essence holding the market. And so if you’re a hedge fund and you’ve got five or 10 really great ideas, one way that you can generate abnormal returns is by basically going all in on those five or 10 ideas, especially in the case of short campaigns. And so it’s actually not as abnormal as you would expect. That’s just one of the things these guys do. They’re very, in many cases, high risk vehicles for investment, and that’s what they do. They just take on these very concentrated bets because they believe in them or they believe they can influence the outcomes or other things like that.
Paul Jarley: Garrett, do you have any GameStop stock?
Garrett Cummings: No, it’s kind of interesting though. The stock itself met our criteria perfectly around the $30 mark. And an idea that we’re teaching, I remember this is something called volatility contraction, meaning that we’re not buying when a stock is bouncing around from $20 to $40 in big swings. Looking for when a stock really settles down in a period of five days to a few weeks within the context of an uptrend. And so we teach our members to buy when the stock makes a new high after it’s consolidated for a period of time in a very tight manner. And what this allows us to do, it allows us to take a decent sized position in a stock, like Kevin was mentioning, but because the volatility of the stock has dried up, it allows us to keep our risk for a stop-loss very close behind it. And so a few of my friends followed this trade, actually. And so they had 30 or 40% of their accounts in this trade when it broke out with a portfolio risk of only about 0.8% roughly behind it. And so did it meet their criteria? Yes, but sadly, because of the fundamental idea, I didn’t believe in GameStop at all. I succumb to more of the fundamental side, and I did not take the trade myself.
Paul Jarley: Did you have some friends who got rich?
Garrett Cummings: I’d had a few friends that made about 40 to 60 grand, so not a million dollars stories, but definitely enough to pay off any debts outstanding, especially at our age. And yeah, they did very well on it.
Paul Jarley: So why didn’t GameStop use this as an event to raise even more cash? Kevin, maybe you answered that early, but do you have a sense of why they didn’t do that?
Kevin Mullally: Yeah, so that’s actually one of the long term implications of this whole incident that I think is the most interesting. So there are a couple of reasons, practically. One, it’s obviously hard to do a seasoned equity issue that quickly. And then the second is more just from an investor’s perspective. So sort of my non-technical description of this whole thing would be that it felt like musical chairs to me. Who’s going to be the last person standing, that’s holding the stock?
Paul Jarley: And you don’t want it to be you, right?
Kevin Mullally: No. No, absolutely not. And so typically what’s going to happen here is with these equity issues, they’re going to be underwritten by an investment bank, and the first sales are going to go out to institutions and stuff like that. And what institution in its right mind is buying GameStop at 300 bucks a share? What is your expected return in that world if you’ve made 300 bucks for this? And so I suspect that there’s some of that going on as well, is that they just know that this is not really viable. They could do an equity issue, but they’re not getting $300 a share for that.
Paul Jarley: Yeah. So who are these Reddit people? Give me some insights here. Are these guys in people’s basements? Josh, you want to weigh in here –
Josh Miranda: Yeah, so –
Paul Jarley: As a reader of Reddit.
Josh Miranda: Yeah, so I mean a lot of my work is kind of in digital media and marketing and communications. So I kind of end up spending a good chunk of my personal and professional life kind of following these trends, these social media communities, if you will. And this subreddit is what it’s called, and this one is called wall street bets. This has been around for several years, as a matter of fact. There’s something like, I think, tens of thousands, or even hundreds of thousands of people who frequent this subreddit to some degree. And the idea being is that they kind of treat Wall Street a little bit more like a casino, and they make a show of some of their buys and some of their losses.
Josh Miranda: I mean, they have their own language for the way they describe some of the trades they make and for the losses that they have. And a lot of it kind of surrounds the way a meme can go viral, for example, and this whole GameStop thing has kind of happened the same way, where you have people who are blindly investing in GameStop just because of the herd mentality. And then they’re posting about their, “Hey, I lost $20,000, I lost $30,000,” and they get a whole bunch of upvotes on their post and the community cheers them on. It’s really … it’s kind of fascinating.
Paul Jarley: Is this where the term meme stock comes from? Is that where this –
Josh Miranda: This is exactly where … yes.
Paul Jarley: You’re paying a lot for that fame.
Josh Miranda: Yes, yes. I believe this community is the one that kind of coined the term meme stock. And it’s right there along with the likes of AMC, with Blackberry, companies who similarly you may not think would be doing too well.
Paul Jarley: Kevin, is this a legitimate area of research in finance?
Kevin Mullally: Absolutely. So this is actually kind of well-timed. We had a seminar speaker here a few weeks ago who presented a paper on Robinhood, and basically talked about retail trading and how Robinhood has facilitated in that and what the effects are. And in essence, this has become a really … this is a really extreme example of his paper, but basically what he saying is that retail traders, people on Robinhood, this kind of demographic of trader essentially buy stocks sort of ignorantly. They just buy whatever is going up or going down and then they just lose their lunch. The stocks that they buy go down quite significantly, five or 10% over the next 20 days. And so, yeah, this notion of how retail trading could affect the market and the propensity of people to be trading over Robinhood and things like that is definitely important, especially given the fact that retail trading has become bigger now, with Robinhood and the sort of commission-free trading and that type of thing. It’s definitely getting to be a more economically significant portion of the market.
Josh Miranda: Yeah. If I can jump in there, it’s kind of been fascinating to watch it from the lens of this Reddit community, because they quickly turned against Robinhood once they started limiting trading of some of these so-called meme stocks, GameStop, AMC, and they almost took on this sort of David and Goliath sort of mentality. We got to stick it to the man. We’re going to stop using Robin hood. We’re going to leave them negative reviews on the app store. And it’s just been interesting to see the way that herd mentality has really driven so many of these key decisions and financial decisions for a lot of these people.
Paul Jarley: Do we have any estimates of how many people we’re talking about here?
Josh Miranda: You mean on the community or how many –
Paul Jarley: Yeah. Well in the description we’re talking about it. I’m going to be a little blunt here, the number of stupid investors that appear to be out there.
Josh Miranda: Sure. Well, so on the front page of this subreddit, it lists 8.6 million degenerates, is what they call themselves, and that’s people who are registered as part of that community. So it’s a lot of people who are at least following this.
Paul Jarley: Now Garrett, do you have any sense of that just from –
Garrett Cummings: Yeah. I’m very proud of the American people for getting back into the marketplace. The number of investors has been on decline since ’08 for a little bit, and it really … I’ve done a lot of studying of the market history. And it really does feel like we’re back in the roaring ’20s a little bit, back when the American people did take a big passion in the stock market. And me being a young, passionate person myself about it, I really hope it’s opened people’s eyes to saying, “Wow, even if I would have just invested $100 in this company, and I did it at the proper time with low risk, I could’ve had a very nice rainy day fund off of that.” And so to me, it’s inspirational. We’re taking down the barrier of the big guy versus the small guy.
Garrett Cummings: The information out there moves so fast, and the fact that this little Reddit page of Wall Street users was able to find out, “Wow, this stock is 140% short interest, let’s run this sucker through the roof.” The fact that they were able to do their due diligence, even though there are a lot of crazy people out there who just go with the herd mentality, the fact that they came out with that information when no other fund or hedge fund easily could have done the same thing or found it, I think that speaks volumes, that the playing field between institutional and retail investors is narrowing at a very rapid rate.
Paul Jarley: Yeah. Is it an American phenomenon though? Or is it a worldwide phenomenon? Does anybody have a sense of that?
Josh Miranda: I know I’ve seen specific commenters, just kind of browsing through the threads, so I mean there are people from other countries. I don’t know if they’re the ones actually making the spend here, but I mean there are people who frequent this website who aren’t from the states.
Paul Jarley: Where are we now with GameStop and that story? I thought it was down to about $90 a share. Is that the last I saw? Is it down below that?
Kevin Mullally: It really depends when you check. It changes every 30 seconds. It’s pretty hypnotic to watch. It’s 61 right now.
Paul Jarley: 61?
Kevin Mullally: Yeah.
Paul Jarley: So are we near the end of the story, do you think?
Garrett Cummings: Personally, I think this is something we’ve seen time and time again, if you’ve paid attention to market history. In the early 1900s, you had the Northern Pacific Railroad had a similar phenomenon. It was $150 a share, short interest was through the roof and a group of traders decided to take advantage of it. And the stock, in one day, went all the way up to a thousand dollars a share before coming all the way back down to $350 a share. You’ve had these boom and busts all throughout history. You had the tulip craze, the South Sea bubble, the .com bubble. So it’s all sorts of things. And usually when a trip … and most recently in the cannabis sector about three years ago, you had [inaudible 00:19:14] rate go from $30 all the way up to $300 a share. So usually when you get these type of moves and they’re round trip, if you did not lock in any profit, I think it’s a very excellent time to go ahead and head for the exit door. The easy money was made on the way up and now it’s just very similar to catching a falling knife.
Paul Jarley: So Garrett, I have to admit, it’s kind of refreshing to have a young guy tell an old guy like me to try to remember history here, because it repeats itself regularly.
Garrett Cummings: Yeah. I get a lot of jokes with my friends, because I’ve read Peter Lynch’s old books, [inaudible 00:19:47], The Old Market Wizard’s books and so on. And a guy named Jesse Livermore said it best: “Human nature is not going to change. So as long as the markets are dictated by human nature, only the names are going to change. You’re eventually going to see a similar bubble situation elsewhere and if you call it a bubble, it can be scary. But if you call it an opportunity, you can catch on the way up if you find a low risk entry and do very well for yourself.”
Paul Jarley: So Kevin, how do you think the GameStop story’s going to end? Is somebody going to buy them? Are they going to go out of business? What’s going to go on there?
Kevin Mullally: I’m not sure. I mean, I think they clearly have to evolve. I mean that seems obvious, that the brick and mortar or video game sales is not really a sustainable operation. In terms of the trading, I’m not sure. I actually think that this could be a more regular event, and I think data’s coming out … when I was kind of reading about this this morning, a lot of data’s coming out that maybe this wasn’t really the retail versus Wall Street kind of thing that it was pitched to be, that one of the main guys in Reddit was a guy who worked for Mass Mutual and is an actual broker. And there’s questions now about how legal his actions were.
Paul Jarley: I was just going to ask that. Was that legal?
Kevin Mullally: Yeah, so there’s quite a bit going on here. And a story came out yesterday that said that this Sendvest Investment, which is a hedge fund, they made $700 million off of this. So it’s not even obvious to me that this is a retail versus Wall Street thing. And the funny thing is, is that this is social media, and maybe the medium by which this is taking places a bit different, but this has been kind of a tactic hedge funds have used for a really long time with trying to get stocks to move in the direction that they want. When a hedge fund does a short campaign, they often do media events about it and they do press releases and they accuse the firm of doing things that are not so great and that kind of thing.
Kevin Mullally: So this idea of trying to get some collective action on a stock isn’t really new either. And I’ll be curious to see if later we find out that there was a bit more on the hedge fund side and the institution side, sort of poking the bear on this one a bit. So I don’t think that this will be the last time we see something like this. And I’ll be very curious if we get more information that reveals that this was not just Redditors who are mad at the stock market or mad at Wall Street sort of fueling this run.
Paul Jarley: How about meme stocks generally? Josh mentioned here, which if I understood Josh, was people sort of bragging about their losses.
Josh Miranda: Yes. And I mean, correct me if I’m wrong, I’m not as much the finance guy as much as I am kind of the media guy, but I had personally never heard of mass amounts of people bragging about all the money that they were losing. This community specifically refers to it as loss porn, is what they call it. And it’s people who just kind of celebrate people who’ve lost all this money from making stupid decisions and kind of laugh about it collectively.
Paul Jarley: Although we don’t know if they really lost money though. We just know they created a meme.
Josh Miranda: They show their portfolio.
Paul Jarley: Oh really?
Josh Miranda: So from everything that they’ve provided, it’s like, “Here’s my portfolio. I lost a lot of money.”
Garrett Cummings: Now if I could touch on the psychology behind that, there’s a guy named Ed Sakota, and he’s quoted as saying, “Everyone gets what they want from the market,” and how the market is subconsciously engraved in how they perform in their trading. And so some people are just purely in it for the adrenaline and the thrill and the gambling. And I think that’s where you see a lot of those people on Wall Street Bets. It’s just subconsciously in their mind that they’re going to lose in the marketplace and just don’t do anything to change it.
Paul Jarley: Are we going to see government regulation here, Kevin?
Kevin Mullally: You know, I think the thing where you could see it as certainly this notion of Robinhood shutting down trading, or only allowing people to close out their positions. I mean, I do think that there’s something to that. It’s an interesting question of what the … of course it always comes down to what your belief about the government’s role is ultimately. There doesn’t appear to be a clear right or wrong answer to me here. Of course on the one side you’ve got these people who are saying, “Hey, we know what we’re doing. We know what we’re getting into and we’re adults and we should be able to do this,” and on the other side the government’s saying, “Well, maybe, maybe not, because some of you are going to lose your lunch on this one as well.”
Kevin Mullally: So I’m not sure. I think what’s going to come out of it is probably more transparency about why that decision was made. And I think clearer rules about when these companies and these brokerages and things like that can actually halt trading, because Robinhood is taking the brunt of this, but other brokerages just at things like increased margin requirements and just made the trading more costly. And I think just more transparency on those rules, the specific terms by which or on which trading would halt, I think will be that the most likely outcome in my mind.
Paul Jarley: What do you think, Garrett?
Garrett Cummings: Personally, if anything comes back to say that retail investors should not be able to [inaudible 00:24:53] maneuver, and in the name of secretly protecting the “hedge funds” that they get messed over, I would find that pretty messed up pretty much, because the market’s supposed to be free. You take your bet and if you lose, you take it like a man and you move on to the next trade. That’s how it’s been since the stock market began. You saw it in 1929 when people got burnt, but guess what? We didn’t change regulation just because people had their feelings hurt. Now, I would definitely love to see more details about Robinhood and how this affects the brokerage side. Did they act within their guidelines in the name of “protecting the investor”? And even if that’s the case, I don’t think they should have the right to infringe on a free market.
Garrett Cummings: If someone wants to buy or sell something and there’s shares available for it or not available, they should really honestly get what’s coming to them, because that’s how they learn. And in 2015, I blew my stock account pretty heavily. I took it from about $20,000 down to $2000. And you know what, that’s part of the game. If you don’t know how to play the game, the game is going to teach you the rules. And the people who did get burned by this, they’re going to learn the rules very fast. And the people who are prosperous from this, I hope they have the rules and don’t go into something else and give away all their gains.
Kevin Mullally: There’s another side to that story though, that would be the argument in favor of some sort of regulation, which is just how we want an efficient capital market, because we have to remember that the trading and the sort of return generation is a consequence of the market, not the goal.
Paul Jarley: That would be nice, and I agree with that, Kevin.
Kevin Mullally: You know what I mean? So if you take a step back and you think about what the purpose is of the market to begin with, the entire purpose is to match savers and spenders.
Paul Jarley: Yeah.
Kevin Mullally: Right. And so if you get into this situation where you have a market that is clearly not efficient, like on no planet can you possibly justify GameStop at $300 or $400 a share.
Paul Jarley: No.
Kevin Mullally: Then you get into the concern that Dean Jarley brought up at the beginning of this podcast, which is why didn’t some firms issue stock during this time? And the answer is GameStop clearly is not going to get 300 bucks a share, but AMC did. They did issue stock during this time. And the concern then becomes if that capital is going to a company that’s overvalued like AMC or GameStop, it’s not going to somebody else who has a legitimately viable project that they could pursue. And so the reason why efficient capital markets are important is because we want spenders to be able to finance projects that will grow our economy. And so that’s the other justification for having at least a conversation about regulation, is not just winners and losers in the market, but it’s the economy as a whole and how the market facilitates economic growth.
Paul Jarley: Because losing trust in that market would be a really bad thing.
Kevin Mullally: Absolutely.
Garrett Cummings: I would arguably say though, that judgment and value is subjective. When you have a stock that’s close to 140% short interest, and you know that, wow, if we can get a short squeeze or this thing could run and these short positions can not cover in time, you can either see it as wow, the stock’s at $30 a share, or we can see it as the fact that people on Wall Street Bets and other institutions saw that wow, this thing’s 140% shorted, we can run this through the roof and make a killing, just like the old commodity rates back in the early 1900s.
Paul Jarley: But I believe that brought regulation, did it not? To commodity markets?
Garrett Cummings: No [crosstalk 00:28:11] lock limit down inside the commodities markets to this day. You don’t have organized … they limit the amount you can buy that to try and prevent that.
Paul Jarley: Yeah, yeah.
Garrett Cummings: But it still can happen where you get lot limit up and lot limit down, and if you’re on the wrong side of that trade, it can be a nasty little spill.
Paul Jarley: So is this going to be a story a year from now? I’m going to ask each of you. Are we still going to be talking about meme stocks and things like maybe GameStop maneuvers going forward? Or is this transitory?
Kevin Mullally: I mean, if these Redditors are bragging about losing $20,000 or $30,000, it doesn’t seem like that’s a sustainable future.
Paul Jarley: Not in my checkbook.
Kevin Mullally: They’re going to run out of money at some point.
Paul Jarley: That’s what I thought too, Kevin. How about you, Garrett?
Garrett Cummings: I don’t think it’s going to be GameStop and AMC, but like I previously said, only the names are going to change. So human emotion and nature loves putting bubbles that we’ve seen throughout history. And so you’re going to just have something else out that goes from a dollar to $50, kind of like NEO went from $4 up to almost $50. You’re always going to find explosive stocks in the market, and that’s exactly what we’re trying to teach our members is okay, how can we identify these opportunities with a small amount of risk and get into them, take our money, and get out before the bubble bursts, essentially?
Paul Jarley: Garrett, you got any interest in going into a PhD program in behavioral finance?
Garrett Cummings: Not really. I’ve just done a lot of studying, and it kind of gets back to what I was saying about Ed Sakota. You get what you want out of the market. So the difference bettwen a losing investor and a winning investor is the losing investors who got their tail handed to them are not going to find what they need to do to win. Myself, I can’t pull it up here on the podcast, but I’ve taken my trading to the level of building a full data Excel sheet that updates live time. And that way I’m having every tool at my ability I need to feel out the market, be able to place the proper bets when I need to. And ultimately it’s a spreadsheet on how to manage my risk while maximizing return.
Paul Jarley: Josh, what do you think? Is this the latest social media craze and it’s all going to go away, or where are we here?
Josh Miranda: You know, I think that might be a little part of it, but it’s like anything. When you have a lot of people who are putting a lot on the line to really do much of anything, that kind of becomes a news story. And when you have millions of people who are on this subreddit, who are even just … even if they’re just monitoring what’s going on, that in and of itself becomes the story. I know now some of these Redditors are focused on driving up some cryptocurrency. Doge coin is one of them. And so it seems like … again, I’m not the finance guy, but it seems like they’re just going to move on to the next thing, and then onto the next thing. And might they be able to make waves somewhere with some stock or some crypto? Perhaps, but it’s clear that these people are just … they’re still going and this community doesn’t seem to be going anywhere. So if they make another headline somewhere along the way, I wouldn’t be surprised.
Paul Jarley: I would just like to take the opportunity to point out that more than two years ago, we decided that Bitcoin is not a thing, at least as a currency. And it continues to exhibit volatility, which makes that impractical.
Josh Miranda: That’s fair. That’s fair. A thing or not a thing though, somebody out there is making money on it, I guess.
Paul Jarley: It’s my podcast, so I get to go last. Let’s start with the thing I’m most sure about. GameStop is not a thing. There was a reason so many investors were shorting it and I don’t see the company making a major turnaround, at least not the GameStop we know. It may serve a niche market in a nostalgia space or as a secondary seller of older equipment and games to parents buying their kids their first video games. But for the most part, the world has passed GameStop by. I’m not investing in it. As Garrett mentioned, bubbles happen from time to time, and some people will lose their shirts. In a twisted display of macho investing, some of these traders will want to post about it online and claim they’re tough enough to take it. But unless they have unlimited lines of credit, serial meme investors aren’t really going to be a thing for very long.
Paul Jarley: Even the E-Trade babies run ended relatively quickly. I suspect meme stocks won’t be a thing for very long either. Chalk it up to a few people getting their 15 minutes of fame. Not a thing, just [inaudible 00:32:41]. Here’s what I think is the real story. Social media gave retail investors a way to coordinate their behavior and maybe influence the market outcome in a way that was impossible in the past. Perhaps a stick it to the man or let’s burn it all down motive played a role with the Reddit group of investors, who see the system is rigged, and were willing to risk losses just to make a point. But ultimately, these retail traders were just participating in the very thing they’re protesting against. Historically, coordinated action by the masses to change market outcomes has been viewed pretty dimly by governments.
Paul Jarley: When manufacturing workers organized in the early 20th century to fight back against what they saw as an unjust wage system, the government took pretty strong action. Add the likelihood that some institutional investors may have participated in the Reddit GameStop action, and are certainly thinking about how to weaponize efforts like this for their own benefit in the future. And I suspect government interest in curbing this kind of behavior in the name of protecting efficient markets is sure to arise if we see a few more repeats of the Reddit GameStop story. What do you think? Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the office of outreach and engagement here at the UCF College of Business. And thank you for listening. Until next time, charge on.
Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.