The Game Never Stops

By now you’ve probably heard about the action in “meme stocks” like GME and AMC, and while there are roughly 1.2mm takes on what’s been happening in them I thought I’d weigh in on whether you should care or not.

What is a “meme stock” exactly? It’s a stock that gets broad support from retail investors simply by being made into a meme. Remember those hilarious Bernie memes (this one my favorite), now imagine someone did the same for a company stock and that was enough to get people excited about investing in it.

If you plan on being an investor you are going to have to accept the fact that memes can move markets, and if that seems ridiculous to you then I’m sorry, the World changes rapidly. Wait until I write a 400 word blog post on Tendies.

Why did GME, one of these “meme stocks,” rise so rapidly? Turns out it was a heavily shorted name among the Hedge Fund community and all it took was a surge in retail buying (both in the stock and options) from a forum called “Wall St Bets” to set off a feedback loop that ripped the stock higher. Trading in some of these names was briefly halted last week (for Wall St back office plumbing issues) but as of today the action is still frenetic.

Is what we are seeing unique? In one way no, the act of speculation is not new, it's a tale as old as time. That being said, in this era investor attention can be brought to bear instantly by social media, action can be implemented for 0 commission both in stocks and options, then watched in real time on a phone from anywhere in the World. That is new, and we don’t know what the ramifications of that will be going forward.

History is rife with events like we are currently witnessing, manias created in stocks that end up captivating the public's attention. These events usually start small, among a tiny group of investors, but then work their way into the public domain because more and more people start to pay attention. This has been accelerated because we are 1) still stuck in our homes due to a pandemic 2) a bit bored 3) always in contact with each other via social media and 4) have unlimited access to financial markets / instruments.

Here’s the thing though, YOU DON’T HAVE TO PLAY THIS GAME. I know your FOMO is kicking in reading about 34 year olds who turned $50k into $48 million. I get it, I feel it too. I’m on Twitter and in this blog telling people to eat peas and carrots while a buffet of candy and champagne is being gorged on.

This is a fact: one of the central failures of investors is leaving their playing field for a different one because they get scared or greedy.

Imagine your playing field consists of Target Date funds and bonds and cash and you look over at some guy throwing the equivalent of a Vegas pool party, it’s going to take a lot of self-control to avoid wandering over and participating.

Play your game, ensure that you are doing everything you can to reach your goals but look, if you want a little pile of money to play around with trading stocks there isn’t a person whose opinion I respect who would say that’s a bad idea. Just keep it small and contained to scratch that itch. Don’t act recklessly.

In the end we are human beings, we don’t live on a financial planning spreadsheet, the urge to speculate in a frenzy can bring vast rewards but it can also bring pain and regret. The line between success and failure is razor thin. 

The investing game, the REAL game, never stops, don’t let events like this one change who you are and what you believe in.

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