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GameStop soars 75%, meme stocks are back - investors to be caught out in frenzy

 

May 14, 2024(Investorideas.com Newswire) Meme stocks are back and investors will get caught out by the frenzy, warns the CEO of one of the world's largest independent financial advisory and asset management companies.

The warning from Nigel Green comes as Keith Gill, known online as 'Roaring Kitty,' posted a picture on X - the first time he's been on the social media platform in three years.

Between 2020 and 2021, he became one of the main influencers who encouraged an army of day traders to heavily invest in GameStop, igniting the meme stock craze.

Short sellers, whether individual investors or hedge funds, anticipate that the price of a particular stock will decrease. They borrow shares of this stock, sell them at the current price, and then repurchase them after the price drops, profiting from the difference.

However, this strategy carries significant risks. If the stock price does not decline as expected, short sellers can incur losses, as was the case with GameStop.

The deVere CEO says: "Since Roaring Kitty's surprise comeback on Monday, GameStop stock is up around 75%; but short sellers lost $1 billion due to GameStop's sudden price jump.

"Elsewhere other meme-related stocks were buoyed. Theater chain operator AMC gained as much as 50% during the session, while Trump Media & Technology made 8%."

He continues: "I think this frenzy is going to run all summer, with the likes of influencer Andrew Tate, among others, involved. Their power is immense and it's going to be a rollercoaster.

"It's a revival of the trend of 2021 and 2022 last year. Back then, many individual investors - often young and inexperienced - got badly burned by the experience. Without doubt, investors will get burned by this frenzy too.

"I would urge everyone to exercise maximum caution with meme stock trading that's being fuelled by social media.

"Of course, big, big money can be made by some.

"But let's very clear: this is extremely speculative and valuations can be expected to be incredibly wild - in both directions.

"To my mind, it's more gambling than investing.

"If you do want the thrill or novelty of chasing big gains, you really should ensure that you have a sound, diversified, long-term plan beforehand."

The original meme stock rally of 2021, also driven by Keith Gill, was fuelled by a surge of new retail traders entering the market, many of whom had additional liquidity from pandemic stimulus measures and historically low interest rates.

Back then Gill, aka Roaring Kitty, shared undervalued GameStop stock on his X page. He bought it for $53,000 in 2019, and eventually, reportedly, turned it into $48 million during the GameStop hype he led.

"We're seeing the same patterns starting to emerge with the return of Roaring Kitty, who on X included a meme of a video gamer leaning forward, appearing to take the game seriously," notes Nigel Green.

"Again, we expect day traders will pile in not because they think the memes have any real value, but because they hope others will get FOMO (the Fear of Missing Out), jack the price up, and then they can sell off and make a quick profit."

He concludes: "Gambling is not the same as investing, and for me this is gambling. Understand the real risks involved to your money."

e: george@priorconsultancy.co.uk
t: +44 207 1220 925
Twitter: @PriorConsults

deVere Group is one of the world's largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of offices around the world, over 80,000 clients and $12bn under advisement.

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