What the Meme is Happening?

What a week for a few meme stocks, namely GME! What triggered the sudden parabolic rise in the stock of Game Stop? Nothing. Well, almost nothing. “Roaring Kitty” hyped GME several years ago and subsequently fell silent for almost three years. Then, out of nowhere, on May 12 he posted a meme of a person sitting up in a chair. See the meme here. Apparently that visual is more important than earnings or some fundamental improvement in GME’s business. From that one meme, people took to message boards, the stock started moving, and the mania had again started.

GME was up 74% on Monday, followed by an additional 60% gain on Tuesday. All for literally zero change in the business of GME. By Wednesday the stock had begun deflating. These types of moves make headlines. And they may support the thought that the market is overextended and irrational – thus time to get out. Yes, crazy things happen and what is going on with GME is irrational, but the market is much bigger than GME and other meme stocks.

The Market is Huge

It is important that investors decouple what happens in a few stocks from the overall market. Individuals buying meme stocks are speculating, not investing. People can speculate in a few stocks, a few stocks can “go to the moon” and be astonishingly overpriced, and not affect other parts of the market.

Taking the outcome of one security or sector of securities and applying its outcome to the entire market is irresponsible. The market is huge and complex. There are many games that can be played concurrently without affecting each other. The important thing is for investors to define what their game is, and what it is not.

What Game Are You Playing?

Investors who have diversified portfolios aimed at achieving long-term goals such as retirement income, financial independence, and creating a legacy have nothing to do with those playing the meme stock game. And they shouldn’t let it bother or sway them in any way.

This is akin to a group of kids playing tag on one side of a park and a group of kids playing baseball at the other side of the park. Totally different games and different areas of the same park. The two different games are played concurrently and independently even though they are at the same park. The game one group decides to play should not influence what game the others choose to play. The park, and the stock market, are sufficiently large to accommodate people playing many different games.

Define your game, formalize your strategy, put your head down and remain disciplined to your game. Don’t worry about what others are doing. They may influence others over the short-term, but that’s all it is…short-term noise. Short-term market movements, headlines, and spurious forecasts have next to no impact for the long-term investor…unless you forget which game you are playing.

– JAY

 
 
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