Bloomberg Audio Studios, podcasts, radio news. Way back in twenty nineteen, financial analyst Keith Gill started buying shares in GameStop, a lot of shares for years. He posted about his position on YouTube.
Himself was one of the most compelling asymmetric opportunities in the market today.
Really, I don't understand howy can disagree with that.
That's why it's the top position.
Gill argued on YouTube and on the Reddit forum All Street Bets that GameStop stock was undervalued because greedy hedge funds were betting the company would fail. He thought these funds just didn't care about brick and mortar businesses with real value. Well, you probably remember what happened next. We've never seen redit traders have such an impact on the stock market such as we've seen with games stopt.
Just what is going on with game stop shares closing it over three hundred and forty seven dollars a piece.
Here, you're witnessing the French revolution of finance.
Tends, rocket ships, diamond hands. For a brief period in early twenty twenty one, when so many of us were trapped at home, the particular language of Wall Street Bets became mainstream. That's when a group of Motley retail investors collaborated to buy shares in game Stop and then in AMC in order to send their stock prices to the moon. The group's leader was Gil, who by this point in time was known as Roaring Kitty. Whoa oh damn, what
a day. Regular investors and sophisticated hedge funds made and lost millions during the memestock craze. But a few years on, with the benefit of hindsight, the rise of memestock seemed less like the French Revolution of finance and more like a product of what happens when we're all bored at home with a bit of extra savings, or so it seemed until this week.
Roaring Kitty is back, at least on social media, and so too is the memesock madness for GameStop it is our stat.
After a three year hiatus. On Sunday, Guild posted an image on x It's a crude drawing of a guy leaning forward in his chair holding a video game controller. Well that reanimated legions of redditors, who once again started posting rocket ships and started asking are you ready for the ride?
Certainly feels like twenty twenty one all over again. You had game Stop surging as much as one hundred and thirty percent. That's the motions early twenty twenty one, AMC climbing as much as three hundred percent.
As of Friday, the rally seems to have fizzled. Those shares in GameStop are still up over twenty percent for the year. Let's attempting to dismiss this week's frenzy as a kind of sad attempt to recapture the drama of twenty twenty one. But Bloomberg's Matt Levine has a theory about what happened back then and what's been happening in stock markets ever since.
I think people learned a real lesson from this in terms of like how a stock can be valued.
Today. On the show Our Best Attempt at memestock Analysis, we ask what a shift away from investing based on the fundamentals of companies could mean for anyone putting money in the stock market. I'm David Gerat, and this is the big take from Bloomberg News. Hey, Matt, it's good to see you. Good to see you, Matt Levine, writes Bloomberg's Money Stuff newsletter, and he recently suggested that the MBA curriculum shouldn't just include a course on stock market analysis,
but also a course on memestocks. Meme financial markets shares in companies like GameStop, AMC, and Hertz have been operating recently under a completely different set of rules. I told Matt I liked the idea and I wanted to take the course for a dry run. So say it's day one of meme financial markets, and I haven't been in a classroom in a long time, but I remember. Professor comes in, gives the students the lay of the land, introduces them to the topic at hand. Let's start the professor, levine,
what is a meme stock? How have we come to define the term?
A meme stock is a stock that I mean, this is my definition, so I'm teaching the class. It's a stock that people trade and people buy because they find it entertaining, because they're part of some sort of like usually online community that gives them a sense of kinship and fun, and they buy it through that community rather than because they've done deep fundamental analysis and decided that the stock is undervalued.
Well, let's take a beat here, Professor Levine. Before we had meme financial analysis, there was fundamental analysis. And I wonder if you can just draw the distinction between the two things.
Oh, you know, like you look at you know, you look at GameStop and you say, I mean part of the case is like the stock was so low at some point that you could say even if they just like sold this thing for parts and just like give back the cash, there would probably be enough to more than pay for the stock. The deep value investor is the person who's like, actually, this company is more cash
than the stock is worth. Right, But also, like with game Stop, you could make you know, you could make a bold case about game Stop somehow becoming a better business, right, Like I mean if you sort of intuitively think, oh, it's a mall based video game retailer. Yeah, it sounds like it's kind of on the way out. Games are mostly downloaded online now, But you could tell a story about game Stop like pivoting to an online e commerce approach.
And like, if you think of this as like a declining business, like you know, how much can it possibly be worth? But if you think they're going to turn it around and become actually a massively growing business, then that's good, right, And that's the sort of kind of fundamental analysis people did as like the first step of this process.
And even beyond Game Stop itself, this idea of fundamental analysis of thinking about how good the underlying business is before you buy a stock, well, it's sort of baked into financial markets.
I think, like five years ago. If you asked people, like, what are financial markets for, like, you get like a fairly straightforward answer, which is that they're like to allocate capital to like the best uses, and that like, there are a lot of very smart people who do a lot of work using data to determine whether price or other stocks are over or underpriced, and you get a market that like makes lots of mistakes, but like is ultimately sort of pointed in the direction of having accurately
priced stocks. And one thing that does is that it allows retirement savers to put their money into the market and essentially earn like the returns to business right Like, Essentially like the economy grows and like corporations make money and you can get a piece of that as a retirement saver. Not because you've done a lot of fundamental assets, but because the market kind of is right and the market kind of gets the fair prices, right. So that's a good aspect of modern of you know, pre twenty
twenty one financial markets. And then the other good aspect is like, yeah, if you're running a company, like you can raise money to do a thing, and that, you know is if you're running a big company and you need to build a factory, you can issue stock to build a factory. But more fundamentally, if you're running if you have a startup idea, you can sell stock to venture capitalists because they know somewhere down the line they'll be able to sell into a public market that like
appropriately values companies. Right, So there's always like apparatus of like funding and like sharing the benefits of economic growth, and none of that is like and it's a fun gamble.
Right, But that that wasn't always the case.
Yeah, if you go back, like, you know, one hundred years, like it would be you know, there was a lot of fraud and insider trading and like not a lot of fundamental data, not a lot of disclosure, and so you did have financial markets that were much more of a gambling game, right, And I think that like part of the last one hundred years of securities has been securities regulation to make better disclosure, and it's been people getting better at analyzing financial markets so that you could
with a straight face tell this story about efficient markets and about allocating capital to its best uses. But like, right, there was that residue of like this is a fun gambling game, this is a hobby, right, and people found a way to bring that back back.
In twenty twenty one, you wrote, and I quote, if we are still here in a month, I will absolutely freak out. And I know it's unfair to hold you to this, but are you surprised that we're still here, that we're living through this again?
That's the line that has been quoted at me more anything else I've written. I think, to be clear, what I meant was like, it's fun to have fun. It's fun to like, you know, have this like meme moment, but like you can't like have a stock traded irrational crisis for months and months and months. I think I
was basically wrong. I think like games Up did come down after that first wild month, but like it stayed pretty high for a pretty long time, but then it did dissipate and like three years on, like it's you wouldn't have said a month ago that game Stop was still in that like meme driven boom, but then it came back this week and am I freaked out by that? Like I don't know.
So moving past twenty twenty one, how is your thinking about the significance of what happened then evolved or change what's shifted in terms of how you see the significance of that moment.
I think there's there's two parts of that moment. There's like the particulars of like the message boards and the stocks that were involved, and like the entertainment value there. It feels transitory and it's like interesting and weird that like they're trying to get the band back together and like it's yeah, sort of work like more than I
would have expected, but like it's kind of fizzled. But I do think that there's this like bigger picture of and I tie this up often to crypto people like realized that you can have like an electronically traded token that has value because people have agreed that it has value, right, and like that's sort of always been true in some form, but it's like it's very sort of like crisply isolated in things like bitcoin and doagecoin and and all the sort of meme crypto tokens. But it's also more or
less true of game Stop. You know, you can be like, if everyone wants to buy game Stop at four hundred and eighty dollars a share, and nobody wants to sell it for less than that, then like, you get a four hundred eighty dollars share a price for game Stop, and if everyone wants to buy it, then like that that's what it's worth. And like, in some ways that's
the lesson of the meme slock craze. It's like, if you want to pay a high price for it and everyone else does, and like, that's what it's worth.
So that's the first lesson in memestock analysis, that if a bunch of people want to pay more for a stock than its value unrelated to how profitable that company is now or could be in the future, well that's what it's worth. Coming up after the break, what memestock mania means for those of us who invest in stocks.
It's easy to see memestocks and crypto as kind of their own thing, a special part of markets for those of us who like to take risks, which to be clear, is not me, but Matt Levine covers a lot more than just the wilder parts of the market in his Money Stuff newsletter. So I asked Matt, how we should view what's happened this week and what happened in twenty twenty one in the broader context of what's happening in markets?
Should we look at this in isolation? So, yes, it's the memestocks from back in twenty twenty one, it's crypto? Or do you see this as part and parcel of kind of a broader shift in how people view stocks or view the stock market.
It's hard to answer that because, like, I think that professional investors are sort of embarrassed by this and like wish it were you know, kind of wish it would go away and be more rational. Right, A lot of people, Yeah, there are a lot of people out there who like their job is to buy stocks that are undervalued and
like short stocks that are overvalued. And now that doesn't work, right because now, like, if it's overvalued, that probably means it'll be more overvalued, right, I think, like to a large segment of like the financial world, this is embarrassing. The other side of that question is like how do you regular people perceive the stock market? How do like
retail investors, ordinary investors purceie the stock market? And I think that part of that is, like for one hundred years, there's been this hobbyist component to investing, right, And part of that is, like some people find it fun to like analyze companies, and like there's like a gambling element, right,
you have fun trying to beat the market. Some of it is like a sort of real economically motivated thing, where like you have a job where you feel you'll never get ahead and you'll never pay off your student loans, and like the stock market is this like sort of mysterious source of wealth and like if you do the right things in the stock market, you can get rich without like a lot of work. Right, It's like a
perception that some people have always had. And in recent years, in the last like twenty years, the sort of like normal way of looking at the stock market has frankly become more boring. Right, people have really driven home the message of like use index funtons. You know, like people get like four roh one k's where they're putt into target dat funds that are just like there's one right, way to invest. So I'm like normal default way and we'll do it for you. You don't have to worry
about it. You know, it's like buy Apple stock because you like Apple, computers like you. Just like you get the market, you get like the boring standard thing. And I think part of the Meme stock reaction is like a lot of the fund has been sucked out of normal investing, and so it's like popping up in this weird, like extremely fun focused area.
A lot of this what we've been talking about sounds a lot like a casino, and I wonder where it's too too very much like one. Where are regulators in all of this? And I remember after the initial game stop saga, the SEC commissioned this report, made the report, publish this report. What did we learn from that? And what did we learn about their aptitude to navigate this world in which you have stocks like this?
I think that I think that people are too hard on the SEC here, because the SEC regulates a number of things. Principally, it regulates like disclosure by companies. It's not in the business of preventing you from gambling on stocks, right, It's just not And like it is a little tiny bit like there are a couple of things, you know, like regulators have been critical of Robinhood because Robinhood used to like show confetti on the screen when you bought
a stock, and they're like, that's gamifying stocks. That's making me exciting. It very confetti, And they're like, we don't want styck treading to be a game, but like fundamentally, like they're not going to ban buying stocks that you think will go up, right, And so like there's just like a lot of this beam stock stuff is i think embarrassing to the sec until like big institutional investors, but there's just like there's nothing illegal, there's nothing wrong
with it. It's just like people like to buy stocks that they think will go up, and like that's that's
not prohibited or really subject to regulation. Now. One thing that people are worried about in the initial bemstock boom and a little bit today is market manipulation, right, And then you could imagine some alternative facts where like you know, someone was like, a ah, I will manipulate up the price of the stock by like writing fake due diligence reports on Reddit and making people think that gamestop's business is going to the moon, and there's just like no
evidence of that. And in fact, the people who wrote these like detailed due diligence posts about games stop seem to have really believed it, you know, and like made interesting points and we're clearly kind of honest, and like the big if you want to call it manipulative thing, was just that they all got together and said, let's all buy the stock to send it to the moon.
And you could imagine a world where that was illegal, but I think in our world it's not like it's just you know, if you all want to get together and say let's buy the same stock, you can, it turns out.
Professor Levin, I look forward to the course in full. But until then, let me ask you to put you on the spot once again. If you had to make a prediction that then invariably we're going to hold you in three years time, yes or no or memes stucks. You think a permanent feature of financial markets, now.
I think I'll be using that term in three years. I think that like exactly how this operates might change. But yeah, I think people learned a real lesson from this in terms of like how a stock can be valued, And I do think that like this is gonna be kind of a permanent tool in the kit.
Malvin, thank you, thank you.
Oh shoot, I'm sure extended to my podcast.
I should have given you the entre for the shameless plug. How should I do that? Matt, you write the money Stuff newsletter. I here, there's another way that we can get your wisdom downloaded straight to our our brands.
There's a money Stuff podcast, all right. This week we talked about memestocks.
You can find the Money Stuff podcast wherever you get your podcasts, and you can sign up for Matt's newsletter at Bloomberg dot com. This is the Big Take from Bloomberg News. I'm David Gurat. This episode was produced by David Fox and Jessica Beck. It was mixed by Blake Maple's back check by Adriana Tapia. Our senior producers are Kim and Naomi Shavin, who also edited this episode. Our senior editor is Elizabeth Ponso. Nicole Beemster Borr is our
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