Caution must be ‘front and centre’ as GameStop Corp. shares more than doubled after the Reddit account that drove the meme-stock mania of 2021 posted what appeared to be a $116 million position in the game retailer, a leading investment advisor has warned.
Shares in electronics and gaming retailer GameStop shares rose as much as 105% in premarket trading on Monday on news of a major influencer taking interest in the stock.
Bloomberg reported that, “the June 2 screenshot by Keith Gill, who goes by DeepF— Value on Reddit, shows five million shares bought at $21.27 apiece. It was the account’s first post in three years.”
The Bloomberg report added that the screenshot, which also included 120,000 call options worth $65.7 million due to expire on June 21, couldn’t be verified. “The options would allow him to buy the stock at $20 a share.”
Between 2020 and 2021, Gill became one of the main influencers who encouraged an army of day traders to heavily invest in GameStop, igniting the meme stock craze.
“If these gains hold, the stock would add around $8 bln to its market cap,” said Nigel Green, CEO of leading financial advisory and fintech deVere Group.
“These super quick, super high, headline-grabbing figures are likely to attract another huge wave of interest and, therefore, capital. I would not be surprised if the stock added $100 billion by the end of Monday due to the frenzy,” Green added.
Short sellers
Short sellers, whether individual investors or hedge funds, anticipate that the price of a particular stock will decrease. They borrow shares of this stock, sell them at the current price, and then repurchase them after the price drops, profiting from the difference.
Last month, the deVere CEO warned that, “this frenzy is going to run all summer, with the likes of influencer Andrew Tate, among others, involved. Their power is immense and it’s going to be a rollercoaster.”
He explained that it’s a revival of the trend of 2021 and 2022.
“Back then, many individual investors – often young and inexperienced – got badly burned. Without doubt, investors will get burned by this frenzy too. I would urge everyone to exercise maximum caution with meme stock trading that’s being fuelled by social media.
“Of course, big, big money can be made by some. But let’s be very clear: this is extremely speculative and valuations can be expected to be incredibly wild – in both directions.”
Green said that, “to my mind, it’s more gambling than investing.
“If you do want the thrill or novelty of chasing big gains, you really should ensure that you have a sound, diversified, long-term plan beforehand.”
The original meme stock rally of 2021, also driven by Keith Gill, was fuelled by a surge of new retail traders entering the market, many of whom had additional liquidity from pandemic stimulus measures and historically low interest rates.
Green concluded that, “the eye-watering numbers might be tempting, but there are real risks involved.”
