Timeless Lessons From Today’s Mania

Today was one of the most exciting days in the stock market for as long as I can remember. Shortly after the opening bell this morning, a basket of the 11 most shorted stocks were up 100%.

Markets that are moving like this can make somebody’s year or ruin somebody’s life.

This type of environment is fertile ground for blogging, so if you’ll indulge me, I want to take a second to discuss a few timeless lessons that we can learn from all of this.

You can get rich quick.

GameStop is up 122% in the last 5 days, 292% over the last month, 426% in the last three months, and 1,860% over the last 6 months.

You can lose it quickly too.

Almost 2 million shares traded at 10:46 this morning at prices ranging between $148.50 and $159. An hour and a half later, the stock fell to a low of $61.13, a 62% decline for the poor soul who bought at its peak.

Sometimes things don’t make sense.

GameStop is fortunate to be in business. They are basically the Blockbuster of video games. You can quibble with this characterization but the bottom line is that the move to digital games combined with the ubiquity of e-commerce has been rough on them, to put it kindly. Their sales are 45% below their highs in 2011. Their free cash flow was $770 million in October 2013 and -$240 million in October 2019. Ouch.

Before the pandemic, the market cap fell to a low of $180 million, and their enterprise value was below zero.

This company went from deep value to whatever you’d call it today in less than a year. Its stock went from an all-time low to an all-time high in less than 12 months.

What’s happening over the last few weeks has absolutely nothing to do with its underlying business, and everything to do with supply and demand.

Markets are still efficient.

This next bit might seem to contradict what I just wrote, but crazy and efficient are not mutually exclusive.

Are prices always “right” at every second of every hour of every day? Um, no. But how many people can consistently know whether they’re too high or too low? This, to me, is the meaning of the efficient market hypothesis, which is still way more wrong than right.

Don’t worry about what other people are doing.

This is easy to say and hard to do. I’d be lying if I wasn’t just a little jealous of the newly minted millionaires who had the courage and good fortune to be on the right side of this trade. But their success has no bearing on my success. And if you want to play this game with them, remember what I just wrote—a 62% decline in 90 minutes.

You don’t know what inning it is.

Remember when someone thought the market was in a bubble every year for the last ten years? Or how about when my plumber was trading stocks back in July? Or how about when Mike Tyson endorsed a trading app in 2017? Or how about everyone’s favorite, when Mila Kunis rotated from cash to stocks in 2013? It feels like we’re hitting a fever pitch, but really, who the hell knows?

I can’t wait for tomorrow. Be careful out there.