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Us versus Them (versus You)

Us versus Them (versus You)

Posted June 4, 2024 at 12:15 pm
Steve Sosnick
Interactive Brokers

(Today’s musical accompaniment by Pink Floyd)

Here we go again.  I spent a good portion of the past two days commenting about the latest burst of activity in GameStop (GME), including making it the focus of yesterday’s piece.  Discussing this stock and the craziness that surrounds it has clarified my thinking about how the meme-stock phenomenon has morphed from “Us vs. Them” to “Us vs. You”.

The original meme stock phenomenon started as something organic and was very much an “us vs. them” thing.  It is a theme that we highlighted in March of this year when Trump Media & Technology (DJT) had its own meme-stock-like run – one that I believe showed “proof of concept” for the current GME rally:

A key element that fueled the original meme stock rally was an “us versus them” mentality that was fermented on social media.  “Them” was the short sellers who were perceived to be rooting for the demise of the chatroom denizens’ favorite stocks.  But what fueled that zeal?  At the time, with the help of my [then 23-year old] son, I attributed it to nostalgia:

“The short squeezed WSB [Wall Street Bets] stocks all have one thing in common besides being short squeezed.  They’re all things a 20-something person would be nostalgic for.  GameStop, AMC, Nokia, Build-a-Bear – things that would make you sad to hear are failing business because it means that you’re old.”

In the January 2021 article that was the source of the nested quote above, entitled “GameStop, BlackBerry and Nostalgia”, we continued:

I had been trying to figure out why a seemingly ragtag list of brands had such staunch advocates all of a sudden.  There was an emotional chord behind the mania, beyond even the desire to get rich and the latest expression of the age-old desire to “stick it to the man”.  There is a real sense of advocacy behind many of the posts, and this would explain it.

“Us vs. them”, or “sticking it to the man” can be powerful motivators.  If a large group of disparate individuals are going to coalesce over social media, a common goal or motivation is necessary, and the original Reddit community found one in battling the institutional short sellers.  There was a somewhat moralistic rationale along the lines of “how dare they do this?”, combined with the fact that short squeezes have existed for about as long as there have been short sellers.  A group of individual investors, led by an oddly charismatic character, found a potent mix of newly active traders, a raging bull market fueled by zero interest rates and stimulus check, and the perpetual need for short sellers to either finance their expensive borrowings or cover them, and created both a stock mania and a common cause.

Here’s the problem now, however: in the current iteration, who is “them”?  It’s easy to know who “us” is.  It’s the crowd who bristle at even the slightest inference that maybe someone would want to exercise some prudent risk aversion, or the knucklehead on social mediav who completely misunderstood why “Roaring Kitty” might have wanted to monetize his gains yesterday by selling stock against his call options.  The “us” is highly committed and galvanized.  But I can’t figure out the “them”.

There simply isn’t a large crop of institutional short sellers to battle, so they’re not a candidate.  Is it the non-believers?  Maybe, but there is a huge difference between being agnostic and being an infidel.  I firmly believe the stock is overvalued, but I understand why traders would be drawn to a highly volatile and liquid stock.  Well capitalized traders with a sense of discipline should feel free to wade into the fray as long as they fully grasp the significant risks that accompany the potential for rewards.

I’m afraid that there is a much more cynical aspect to the current GME activity.  Although a post late yesterday implied that “Roaring Kitty” had not taken any profits during yesterday’s run-up, keeping to the “HODL” ethos, it strikes me as astounding.  But whether or not they did sell any stock or options, it is clear that they are using their posts to stoke enthusiasm from the faithful.  It’s rarely a good idea to chase a stock – any stock – especially if someone needs your buying to keep it moving.

Thus, if you’re not sure who “them” is, perhaps “them” is “you”.

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3 thoughts on “Us versus Them (versus You)”

  • spshapiro

    I’ve often argued that there is a difference between investing and gambling, but in this case it is a distinction without a difference. When you invest in actual ongoing business you have some expectation of participating in (hopefully) a future income stream. Yes there is a degree of chance to it, but there is an expectation that you can evaluate whether or not a company has future prospects or not. It is not merely a guess as to the turn of a card or a throw of the dice. The value of GME tomorrow, or next week, has no connection to what the company is doing. And although Buffet has said that the market in the short term is a voting machine, the long term weighing is based on what we perceive that the company is doing (or has done) and not some meme.

  • Meegs

    I assume the biggest seller in recent weeks has been the company itself given the $933 million in new shares sold. So if “us” is the buyers, then “them” is now GME’s management.

  • Anonymous

    In the market, a lot of peoples or companies that are good at driving the market have success in finding followers. At this game, in general, the best informed ones should win. The others, less informed or not at all informed, should lose their money. Every trade is about the knowhow of the percentage probability to succeed or not. If you can’t calculate this, in any trade, for a duration in minutes, days, months or years, then it is better to decide to stay away of the temptation. And, that is right for any kind of trade, and also about meme trades…

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