How coordinated buying by retail investors has turned the tables on Wall Street. Are there signs of a market bubble?
Topics covered include:
- What are meme stocks
- Why GameStop’s stock (GME) has soared to over $300 from $17 in less than a month
- What are short squeezes and gamma squeezes and how they can push up a stock price
- How short-sellers including hedge funds are losing big against individual investors on the wallstreetbets subreddit
- Is coordinated buying of options and stocks by individual investors illegal?
- How market flows into stocks are taking precedence over fundamental data
- Is the stock market in a bubble and how does the current market environment compare to the 1999 Internet bubble and the 2006 housing bubble?
Show Notes
FOR POSTERITY—Almost Daily Grants 1.25.21
GameStop can’t stop going up by Jamie Powell—Financial Times
Reddit: bull attack by Jamie Powell and Philip Stafford—Financial Times
How WallStreetBets Pushed GameStop Shares to the Moon by Brandon Kochkodin—Bloomberg
Submit Your Pick for the Next Meme Stock Here posted by u/AssPowers 2/18/20—r/wallstreetbets
17 CFR § 240.10b-5 – Employment of manipulative and deceptive devices.—Legal Information Institute
Five Things You Need to Know to Start Your Day by Cormac Mullen and Tracy Alloway—Bloomberg
Tweet by Paul Kedrosky (@pkedrosky) on 1/25/21
US stock rally drives ‘ludicrous index’ towards dotcom era heights by Eric Platt—Financial Times
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Transcript
Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it. I’m your host, David Stein. Today’s episode, 329. It’s titled “Meme Stocks, GameStop, Short Squeezes, and Bubbles”
Wallstreetbets subreddit
Yesterday on the Money For the Rest of Us Plus member forums a member posted “My entire investing life I’ve been following the general concepts FIRE/Boglehead mentality. Passive index investing. It’s done well for me, and I understand it analytically. Sometimes I vary my asset allocation based on conditions, which is why I liked the Plus membership when I’ve found it. I own a few individual stocks, but overall, I probably vary my portfolio less than David.”
For fun, the member continues:
“I’ve been a long-time reader of an internet stock picking site, but recently decided to dip my toes in the water, and it’s been very profitable. The site is wallstreetbets. It’s a subreddit. It started in 2012 and it has 2.3 million members.”
The member continues:
“A few months ago, I decided to buy some calls on Tesla based on the recommendations there and sold after I made 100% gain in less than a week. I could’ve made a lot more. Likewise, this week I put only 1% of my net worth in GME, GameStop shares, and sold after a 50% gain in a couple of hours. It was up 70% at one point. There’s plenty of posts of folks going up eight figures this year. Ridiculous action. So what to make of this? Part of me feels like the market is broken. But I’m in my mid-30’s. Perhaps I’m just not old enough to understand if there is always an opportunity like this.
I’m very aware that just like gambling, you can win big when you’re in it for a small amount, and then lose big when you decide to go all-in. That’s not my intention, but I can’t help but pay attention to these gains and consider taking a percentage of my net worth and playing along. Or maybe the market is broken for a few months or years, and I need to take advantage of this opportunity. For those who are old enough to live through the dot-com bubble, was it like this? This time it’s different?”
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