$GME and Other Meme Stocks

If you thought 2020 was a unique year, just wait until you see 2021! Gamestop is an iconic retailer from yesteryear that has been on the decline for many years. Their overall revenue has decreased from $9.55 billion in fiscal 2011 to $6.47 billion in fiscal 2020. This trend has largely been reflected in the market, driven by technological advances and changes in consumer preferences. This is not to say that Gamestop doesn't have a chance to be successful, it's that the fundamental analysis doesn't lend itself to a favorable investment income.

The story of the $GME stock differs greatly from the fundamentals, however. The Reddit squeeze was built on the greed of hedge funds who had over-shorted the $GME stock to levels over 100%. An astute Reddit user, DeepF***ingValue, publicly touted the stock and his investment on Reddit, surging overall demand. Over the next couple weeks, increased buying from Redditors drove the price to a peak of $483 on January 27th.

This quick rise in value was met with an even quicker decline. Restrictions from brokers such as Robinhood hastened the dramatic fall from all-time highs seen on the 27th. The stock would experience a dead cat bounce here but would soon return to much lower prices. It's currently sitting at $49.51, which is still more than a 50% increase from price levels seen in early January 2021.

There are several learning opportunities here. Investing needs to be calculated and rooted in fundamental analysis for long term success. Trading based on FOMO will more often lead to major losses than gains. With that said, the internet is vast and privy of resources to increase financial dexterity and market knowledge. Do not search for a guru! There is no secret sauce. There is no formula for success that isn't widely known or available to learn through the excellent resources freely available to everyone.

I saw Kevin O'Leary on CNBC today speaking about the possible regulation (and lack thereof) that will come from these events. I'm in agreement with his position, although brokers like Robinhood should not be allowed to limit trading in any way. The integrity of the free market must be maintained in this regard and retail investors should be empowered, not restricted. As technology continues to lower the stock market barrier to entry, look for these battles to continue in the future.