Gordon: Surprising to see the return of the meme stock craze

In a recent discussion, Gordon and Todd explore the resurgence of the meme stock phenomenon, noting that while it may seem surprising, the current market dynamics are quite different from the 2020-2021 frenzy. They highlight that the short interest in stocks like GameStop has significantly decreased, reducing the potential for a short-covering rally. The conversation also touches on the lessons learned from the previous meme stock boom, including the impact of pandemic stimulus checks and the surge in options trading. Gordon advises against trying to capitalize on volatile stocks pushed by message boards, instead suggesting a more disciplined approach to investing, particularly in companies experiencing significant growth due to advancements in A.I. technology.

Takeaways

• 📈 The market is currently in a transitional period, which is different from the meme stock craze of 2020 and 2021.
• 🧵 The short interest on the stock in question is significantly lower than during the previous frenzy, reducing the likelihood of a short-covering rally.
• 🚀 The original meme stock craze was fueled by pandemic stimulus checks and a surge in retail trading, particularly in options.
• 💡 Todd Gordon suggests that the current situation is different due to changes in the economy and market dynamics.
• 🔥 High inflation and the NASDAQ reaching new highs are not directly correlated with the meme stock phenomenon.
• 🤔 Gordon was skeptical about a company's performance, warning against aggressive positions, which led to a negative experience on Reddit boards.
• 📉 He mentions a company that was expected to make 12 cents but only made 6 cents the previous year, indicating a cautious approach to investing.
• 💼 Gordon advises against trying to short the stock via options due to the risks involved and suggests looking for more disciplined investment opportunities.
• 🎓 He encourages a younger audience and CNBC viewership to consider the booming A.I. technology sector, where companies are significantly beating earnings per share (EPS).
• 🚫 Gordon discourages buying cheap stocks that are being targeted by message boards, advocating for a more strategic deployment of capital.
• ⚖️ The advice given is to seek out opportunities in established companies with strong growth prospects rather than chasing volatile, speculative stocks.

Q & A

What is the current state of the market according to the discussion?

The market is described as being a bit quiet and going through a transitional period, which might be attributed to factors such as the end of the academic year and a shift in market dynamics.

What was the role of the pandemic and stimulus checks in the 2020-2021 meme stock craze?

The pandemic and the abundance of stimulus checks led to an increase in retail investing, with many people opening Robinhood accounts and engaging in options trading, which contributed to the original meme stock frenzy.

How has the short interest in the stock changed from the 2020 meme stock craze to the present?

In 2020, there was more open short interest than the float on the stock, with short interest reaching 250 million and 275% of the float. In contrast, the current short interest is $65 million, which is 35% of the float, indicating a reduced potential for a short-cover rally.

What is the speaker's view on the current situation with GameStop and similar stocks?

The speaker believes that the current situation is different from the past, with a different economy and market dynamics. They caution against getting involved in these stocks and suggest that there are better opportunities elsewhere.

What was the speaker's experience with Reddit boards during the previous meme stock craze?

The speaker had a negative experience on Reddit boards, where they felt 'skewered' and unable to respond effectively due to the platform's posting requirements.

What advice does the speaker give to younger investors or those interested in trading stocks like GameStop, AMC, or BlackBerry?

The speaker advises against trying to buy cheap stocks that are being targeted by message boards like Reddit. Instead, they recommend looking for more disciplined ways to invest, such as companies experiencing significant growth in areas like A.I. technology.

What is the current economic situation that the speaker mentions?

The speaker refers to an economy where people are working, suggesting a shift from the conditions of the pandemic when many were not, and indicating a transition period for the market.

What is the speaker's opinion on the potential for high volatility and massive upside in the stock market?

While acknowledging the potential for high volatility and massive upside, the speaker cautions against it, suggesting that it can be a risky strategy, especially for inexperienced investors.

What does the speaker suggest as an alternative to investing in meme stocks?

The speaker suggests investing in companies that are part of a significant technological boom, particularly those in the A.I. sector, where there are opportunities for substantial returns.

What is the speaker's stance on shorting stocks via options in the current market?

The speaker expresses caution about shorting stocks via options, mentioning a past attempt that wasn't successful and advising that there are too many opportunities to get involved in such risky trades.

How does the speaker describe the change in the company's performance from the expected to the actual earnings?

The company was expected to make 12 cents last year but only made 6 cents, highlighting a discrepancy between expectations and reality.

What is the importance of understanding the difference between the past and current market dynamics according to the speaker?

Understanding the difference is crucial for making informed investment decisions. The speaker emphasizes that the current market is influenced by different factors, such as economic conditions and investor behavior, which require a different approach.

Outlines

00:00

📈 Market Dynamics and the Return of Meme Stocks

The conversation begins with a discussion on the current state of the stock market, noting that it's experiencing a period of quietness and transition. The guest, Todd, suggests that the recent activity around meme stocks isn't a return to the frenzy of 2020 and 2021, but rather a different market dynamic. He also mentions the role of high inflation and the Nasdaq's performance. The discussion touches on the lessons learned from the previous meme stock craze, which was fueled by the pandemic and stimulus checks, leading to a surge in retail trading and options trading. The current situation is differentiated by the logistics of stock trading, with a significant reduction in short interest compared to the float, which diminishes the potential for a short-covering rally.

Keywords

💡Meme Stock

A 'meme stock' refers to a stock that gains popularity and experiences a rapid increase in price due to social media influence and retail investor enthusiasm, rather than changes in the company's financial performance. In the script, the return of the meme stock craze is discussed, highlighting how investor behavior on platforms like Reddit can impact stock prices.

💡Short Interest

Short interest represents the number of shares that have been sold short but have not yet been covered or closed out. In the context of the video, it is mentioned that in 2020 there was more open short interest than the float, which contributed to the intensity of the short-covering rally. The current short interest is significantly lower, indicating a reduced potential for a similar rally.

💡Robinhood

Robinhood is a commission-free trading platform popular among retail investors. The script references a surge in Robinhood accounts being opened during the pandemic, which contributed to the initial meme stock frenzy as retail investors gained easy access to the stock market.

💡Options Trading

Options trading involves buying or selling contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a set price before a certain date. The script mentions that during the 2020 meme stock frenzy, there was a surge in options trading, which added to the market volatility.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The script briefly mentions high inflation in the context of the current economic environment, which is different from the conditions during the initial meme stock craze.

💡NASDAQ

NASDAQ is a stock exchange platform known for listing technology and biotechnology companies. The script refers to the NASDAQ breaking new highs, which is a measure of the overall performance and growth of the technology sector in the stock market.

💡Short-Cover Rally

A short-cover rally occurs when short sellers are forced to buy back the shares they have shorted to cover their positions, leading to a rapid increase in the stock price. In the script, it is mentioned that the conditions for a short-cover rally are not as favorable as they were in 2020 due to reduced short interest.

💡Reddit

Reddit is a social media platform where users can discuss various topics, including investing. The script discusses how Reddit boards played a significant role in driving the meme stock phenomenon by influencing retail investor sentiment and trading behavior.

💡GameStop

GameStop is a company that was at the center of the meme stock craze, where its stock price surged dramatically due to retail investor enthusiasm fueled by social media and online forums like Reddit. The script refers to the company as an example of the meme stock phenomenon.

💡Economic Transition

An economic transition refers to a period of change from one economic system or model to another. The script suggests that the current market dynamics are influenced by an economic transition, which is affecting investor behavior and stock market trends.

💡AI Technology Boom

The AI technology boom refers to the rapid growth and development in the field of artificial intelligence, which is transforming various industries. The script advises viewers to consider investing in companies benefiting from this boom rather than focusing solely on meme stocks.

💡EPS (Earnings Per Share)

Earnings Per Share (EPS) is a financial metric that measures the profitability of a company by dividing the net earnings by the number of outstanding shares. The script mentions that massive companies are beating EPS estimates by 50%, indicating strong financial performance and potential investment opportunities.

Highlights

The return of the meme stock craze is surprising and indicates a different market dynamic.

The market is currently quiet, going through a transitional period.

Short interest in the stock has significantly decreased compared to 2020.

The original meme stock craze was fueled by pandemic stimulus checks and increased options trading.

The current short interest is $65 million, with 35% of that being float.

The fire for a short-cover rally is not present as it was in 2020.

Todd Gordon warns against making aggressive moves based on Reddit board discussions.

The company mentioned is expected to make 12 cents last year but only made 6 cents.

The current economy and labor market are different from the time of the original meme stock craze.

Gordon suggests caution and considering other investment opportunities.

High inflation and Nasdaq breaking new highs are not directly correlated with the meme stock phenomenon.

Todd Gordon advises against trying to short the stock via options due to the current market conditions.

There are many companies experiencing significant growth in the A.I. technology boom.

Gordon encourages a more disciplined approach to investing and capital deployment.

Investors are advised not to be swayed by message boards targeting cheap stocks.

The potential for quick wealth through massive upside volatility is enticing but risky.

For those interested in trading stocks or options, consider the broader market and technological advancements.