David And Goliath
GameStop’s (GME) Lightning in a Bottle
Everyone loves an underdog story and boy do we have a great one. Make no mistake - DAVID (LINK) - found an inefficiency. He found a boat that was tilted too much on one side (too many funds betting on lower prices) – and flipped it over. He beat Goliath (Wall-St’s elite) at his own game. Markets are a meritocracy. The best ideas always win, regardless of who or where they come from. However, a group of retail investors by themselves - CANNOT ever change market dynamics for too long. Not even in single securities. Other sophisticated funds took full advantage of the market dynamics. Then the unexpected happened. A good investment thesis then escalated into an anti-establishment movement. A movement that is looking for justice for Main street – one that is expressing the frustration felt by masses that feel disillusioned - and feel left behind. The score card, GME rose 400% in a week, a one-in-a-hundred-year event.
Cornering the market
Several stocks shot up like rockets last week. These are markets that are cornered by artificial constraints, not by fundamental changes in businesses. However, nothing is ever new in financial markets - simply because human behavior never changes. While the narrative is always different, the iteration of fear and greed is always the same. Speculators have been cornering markets since the beginning of time – from railroads, onions, silver, and now ….. in various securities. (LINK). It is purely an artificial scarcity in supply – which works for a short period – but always ends badly for the speculators.
The Un-intelligent Investor
Media outlets have reported a change of the guard. After a decade of mostly investing in index funds, the retail investor is engaged. In the case of GME and other stocks this week, a small percentage of early investors will reap handsome rewards. The majority will lose … and lose big. Stocks over time go to what the business is worth. There are no exceptions. Does anyone really believe that GME, a brick-and-mortar videogame middleman, is worth a $100/share, let alone $300/share or $22 Billion in equity value? In the worst case, regulators will step in, to stop a run on the markets. Losses will only bring more disillusionment, further emphasizing that the system is rigged against the little guy. It is sad. Markets offer unlimited opportunity to those who are willing to get rich slowly – and unlimited losses to those looking to get rich overnight.
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10/1/2022 12:36:53 pm
hanks for sharing the article, and more importantly, your personal experience mindfully using our emotions as data about our inner state and knowing when it’s better to de-escalate by taking a time out are great tools. Appreciate you reading and sharing your story since I can certainly relate and I think others can to
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I am an investor and these are my personal thoughts on investing, behavioral finance, markets, and sports viewed through the prism of a Latticework