Not all investors will profit from meme trade, expert warns

GameStop (GME) stock has reignited a frenzy on Wall Street on the very first trading day of June, as the notorious meme trader "Roaring Kitty" took to social media revealing a $175 million position in the company. The legitimacy of Roaring Kitty's — the online username of meme investor Keith Gill — investment portfolio has yet to be verified.

In the wake of this stock surge, Catalysts welcomes RapidRatings International Executive Chair James Gellert to discuss what these meme stock rallies mean for investors and the broader market (^DJI, ^IXIC, ^GSPC).

Gellert notes that the meme trade phenomenon proves "a frothier market," although he noted that reactions of such magnitude do not occur unless there is "real excitement going on," particularly in a company "that still has a lot of fundamental issues to solve."

While acknowledging the potential for investors to reap profits, Gellert states "no one wins without someone else losing in a case like this. There are definitely people with axes for momentum, and they are pushing the stock, and a lot of people are jumping in, but not everyone is getting out at a time where they can make a profit."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video transcript

James, it's good to see you here.

So let's talk about this excitement that we're seeing back once again within the markets all being driven by this post that we think is from Keith Gill over at Reddit, the, the account linked to Keith Gill in the past.

What does this tell you just about the current investor sentiment right now?

And whether or not uh these, this type of behavior is here to say when you get someone like Keith Gill posting about that opportunity that he at least sees in gamestop.

Well, I think it indicates we're in a frothier market again when we have a Frothy market.

When we have a lot of exuberance, there's, there are momentum players, particularly from the retail side that are prepared to come in and throw money.

In some cases.

It's uh it's new money that they're investing in some cases.

It's gains from other places that they have made bets over the last uh over the last year to a few years.

But you don't see this kind of a reaction unless there is real excitement and exuberance going on.

Otherwise you just can't see the jumps in stock price in a, in a company like this that still has a lot of fundamental issues to solve unless, unless there's just a ton of eagerness in a group of investors to be involved, kind of at any price.

Well, given that I want to get your take on what we're seeing today versus what we saw in 2020 we spoke with we Bush analyst, Michael Factor about what roaring K 2020 move on Gm me mean and why it sort of made sense at the time?

Take a listen to what he had to say, more than 100% of the share short.

And he made that obs observation, it was astute.

He rallied uh retail investors, redditors, you know, reddit Raiders to, to buy into the stock.

So he's talking about that 2020 move sort of making sense given what he was seen in the shares, this astute observation here, given what you just heard compared with what we're seeing today, are investors more likely to lose this time around.

I think a lot of investors have lost pretty consistently along the way.

And when you take a company like gamestop that has capitalized, you can argue well and appropriately or inappropriately.

But the company that capitalizes on this kind of momentum by issuing new stock is fundamentally diluting the holdings of everyone who has invested to date.

So when, when games stop issued at the market equity just a few weeks ago, they were effectively diluting the value of each share that each holder had prior.

So irrespective of what the share price was, there were more shares and therefore everyone held a little bit less.

So you've got this phenomenon going on as well in almost each one of the rallies that we've seen, they are coming off.

We're not holding the highs even today.

We haven't held the highs on Gamestop.

No one loses, no one wins without someone else losing in a case like this.

So there are definitely people with axes for uh for momentum and they are pushing the stock and a lot of people are jumping in, but not everyone is getting out at a time when they can make a profit.