Meme stocks return as GameStop surges 75%
Meme stocks have returned, and investors will likely get burned by the frenzy.
The Return of GameStop’s Day Trading Guru
Keith Gill, known online as ‘Roaring Kitty,’ uploaded a picture on X, the first time he’s been active on the social media platform in three years.
Between 2020 and 2021, he emerged as one of the primary influencers motivating a large group of day traders to invest heavily in GameStop, sparking the meme stock frenzy.
Short sellers, whether individuals or hedge funds, predict a stock’s price will drop. They borrow shares of the stock, sell them at the current price, and buy them back after the price falls, making a profit from the difference.
However, as quoted by CBS News, MSN, Yahoo Finance, City AM, Investor Ideas, and Financial Express, I believe this approach has substantial risks. If the stock price doesn’t decrease as anticipated, short sellers can suffer losses, as seen with GameStop.
Following Roaring Kitty’s unexpected return on Monday, GameStop stock has surged around 75%. However, short sellers incurred losses of $1 billion due to the sudden increase in GameStop’s price.
Influencers Fuel the Frenzy Once Again
Other meme-related stocks also received a boost. The theatre chain operator AMC surged by as much as 50% during the session, while Trump Media & Technology experienced an 8% increase.
This frenzy will continue throughout the summer, with influencers like Andrew Tate and others driving it forward. Their influence is substantial, and it will be something of a rollercoaster.
Indeed, it’s a revival of the trend from 2021 and 2022. During those frenzies, many individual investors, often young and inexperienced, suffered significant losses. Undoubtedly, investors will face similar losses during this current frenzy.
A Call for Caution Amidst the Frenzy
As such, I urge everyone to be extremely cautious regarding social media-driven meme stock trading by social media.
Naturally, some people will make big money. However, this is extremely speculative, and we can expect valuations to be incredibly volatile – in both directions.
To my mind, it’s more like gambling than investing.
If you’re seeking the thrill or novelty of chasing big gains, it’s essential to have a solid, diversified, long-term plan in place beforehand.
The original meme stocks rally of 2021, also fuelled by Keith Gill, was driven by a surge of new retail traders entering the market.
Many of these traders had additional liquidity from pandemic stimulus measures and historically low interest rates.
Back then, Roaring Kitty shared undervalued GameStop stock on his X page. He initially bought it for $53,000 in 2019 and reportedly turned it into $48 million during the GameStop hype he led.
We’re now seeing similar patterns emerging with the return of Roaring Kitty, who on X included a meme of a video gamer leaning forward, appearing to take the game seriously.
Once again, we anticipate day traders will pile in not because they believe the memes have any real value but because they hope others will experience FOMO (the Fear of Missing Out), drive the price up, and then they can sell off to make a quick profit.
Gambling isn’t the same as investing, and for me, this is gambling. It’s essential to understand the real risks involved with your money.
Read my previous blog post here.