GameStop FOMO? 9 Investment Sages Explain Meme Stock Mania – Forbes

by Eliza Haverstock, Chris Helman, Halah Touryalai, Sergei Klebnikov, Matt Schifrin

Despite the Covid-19 crisis, a presidential impeachment and ongoing stimulus angst, the stock of a failing video game retailer took center stage last week. Best known for its mall outposts, Grapevine, Texas-based GameStop became the focal point for an angry mob of millions of young investors on a Reddit community known as r/WallStreetBets. Their collective might, empowered by novice Robinhood traders and stimulus money, sent the stock up more than 600% in little more than a week, making fortunes for some but also effectively bankrupting seemingly sophisticated hedge fund investors in the process. Their triumph inspired similar bullish raids on other declining companies now referred to as “meme stocks”, including Blackberry and AMC Entertainment.

To make sense of the madness, Forbes reached out to some of the most respected market minds and practitioners who offered their perspective and predictions.

Burton Malkiel 

Professor of Economics, Princeton University, author, A Random Walk Down Wall Street

“It’s the same phenomenon as the Dutch going crazy in the 1600s buying tulip bulbs. It’s happened time and time again. These speculative manias are likely to be a fact of life forever…In some sense like a game of musical chairs, there’s somebody who’s going to be left standing.”

“It seems to me to be very much like the raid on the Capitol building. It is a speculative craze sparked by social media. We certainly very much value free speech. And yet, I think we clearly see some things happening with the social media phenomenon that raised a lot of issues…As a country, we’ve really got to think very carefully about how we deal with this.”

Jeremy Siegal

Professor of Finance, The Wharton School, Co-founder WisdomTree Investments, author, Stocks For The Long Run, The Future For Investors

“GameStop is no where near worth what it was trading at but it’s a perfect example of the greater fools theory where it’s possible to make money on something if it’s overvalued so long as there’s someone willing to pay a higher price…I hope that these [Reddit] investors can be turned into long term investors where the odds are actually for you and not against you. We want to get them on the side of investing rather than speculating, because you don’t need to speculate to make money in the market.”

Albert Edwards

Global Strategist, Société Generale

“The Fed has become trapped by a monster of its own creation as the financialized economy would implode if stocks collapsed…Fed liquidity has washed away the weighing machine and left only the voting machine standing, together with his printing machine.”

Michael Steinhardt

Philanthropist, founder Steinhardt Partners, co-founder WisdomTree Investments

“What’s been happening really is a reflection of the quality of analysis, the quality of work, the quality of input that is coming to Wall Street. And it’s a sorry tale, that something like this can happen.”

“It’s unlikely that [stocks like GameStop] could create the sort of [systemic] problem [that we saw in 2008]. And then, even if some random brokerage firm felt some problem from these crazy moves, so what? In the end GameStop and some of these others are going to go down a lot. And, it’s that phenomenon which is going to create pain for investors who can least afford it.”

Peter Garber

Retired economics professor, Brown University, former Global Strategist, Deutsche Bank, author, Famous First Bubbles

“It’s not at all about the item of speculation (GameStop, in this case), it’s about the financing of the two sides. Who has access to credit and cash to withstand the tug of war. The Panic of 1907 was triggered by an attempt to corner shares of United Copper Company. Drove the price up. Shorts entered the scene. And then there was an attempt to squeeze them. Players went bust. A large number of banks got stiffed. There was a bank run, a shortage of cash, and John Pierpont Morgan had to step in to supply cash to the market. He became the de facto central bank. It led to the creation of the Federal Reserve.”

“Who’s the mob? People disemployed by government fiat. And they are working from home and given money to spend. They banked it and nothing else to do with it. Somebody just had to plant the idea.”

Ciamac Moallemi

Professor of Business in the Decision, Risk & Operations Division, Columbia Business School

Principal, Bourbaki LLC

“If I was a short seller, I would be very, very concerned. And I would be continuously monitoring [social media] for the names that I’m interested in. I’ve heard of quantitative investors who’ve gone to sort of scrape these forums and try to mine them and build signals. I think this will change things.”

“These [hedge funds] are sophisticated investors, and they’re not gonna set themselves up for anything. I think people just weren’t aware that this was possible. But now that you’ve seen it once? It’s sort of like after 9/11,  people didn’t think you could take over airplanes or crash into buildings, you know, Now, that doesn’t happen anymore.”

Mohnish Pabrai

Founder and Managing Partner, Pabrai Investments Funds

A lot of this is human nature, it’s lemming-like. When you see your dumb neighbor making money you think ‘gee, I’m smarter than him, I should get in on that’. Everyone wants to join the party. And now this has gone beyond Reddit because it’s international. There’s a housewife in New Zealand who’s seeing all this and wants to be a part of it.”

“In the past if you had a group colluding the SEC could come in and use its rules and regulations to end it. But this is a group of people on Reddit who don’t know each other on a public forum, and maybe it’s not exactly colluding but it has the same effect of moving a stock. It’s a network without a central nervous system, without a core.”

Ben Inker

Head of Asset Allocation, GMO

“What we’re seeing now is way beyond the 2000 Internet bubble excesses. People buying GameStop do not care about the underlying company. Its future is irrelevant to them. Instead, with GameStop we see a strong element of anger. It is ‘I’m going to screw this guy. Wall Street has been taking advantage too long.’ Occupy Wall Street was that.”

“The end of Covid lockdowns could be the catalyst to pop this bubble. People have been buying the companies that are Covid immune. When the world can go back to normal those stocks no longer deserve their premium.”

Ron Baron

Founder and CEO, Baron Funds

“Robinhood is a joke. This is the gamification of the stock market. They say there’s no commissions – but that’s also a joke, they sell customers’ order flow…Sooner or later, people who are investing in that fashion are going to lose a lot of money.”

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