GameStop Losses: Right Strategy, Wrong Asset

A lot of people lost a lot of money in GameStop this week. I feel for them — especially since I have been there myself. As I write this, GameStop is trading at around $66, down from a high of more than $450 last Friday. It was trading around $255 when I wrote the following last week.

The game these traders are playing is a risky one. Yes, a lot of them made massive gains on GME. And I’m happy for them. But I’m pretty sure a lot of people will get burned in the end. GameStop is trading far above whatever the fair value of the company is. Eventually, there will be a rush to the exits, and those who don’t time it well will be left holding the bag. 

The GameStop phenomenon was a remarkably effective — yet decentralized — stock promotion. In many cases, it worked too well. People on the WallStreetBets (WSB) forum and elsewhere became absolutely convinced that the short squeeze wouldn’t end until at least $1,000. They posted hundreds of times about having “diamond hands” that wouldn’t sell. “Paper handed b****es” who sold were made fun of.

Even the man who is credited with starting it all on WSB — Keith Gill — held through at least some of the crash before posting a screenshot of his $13 million paper loss. Shares have gone down significantly since then, and we don’t know if he’s still holding or not.

For a while, the squeeze worked really well. But eventually, people sold — as they always do during a speculative episode. Sure, GameStop could rise again, but I’d say the odds are not great. It’s a wounded brick and mortar retailer in the age of e-commerce. 

Traders who held onto GME through the crash have demonstrated they have the discipline to buy and hold long-term. They used the right strategy — but with the wrong asset.

Try Diamond Hands With Better Assets

Why not buy and hold some cheap emerging market stock exchange-traded funds (ETFs) instead of meme stocks? Let the 3%-to-7% dividends compound for a decade or so. Emerging market shares are priced a lot lower than expensive U.S. ones. They also have less debt paired with much higher and more sustainable dividends. A few ETFs to consider include VWO, EYLD, EWZ, and RSX

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