GameStop again?

SPEAKER_1 (0:02)

What we want to maximize is not expected return, it's not expected wealth.

It's some kind of risk-adjusted wealth or risk-adjusted return. And we all know that, but we have to be really careful that we don't fall into a trap of maximizing expected value or expected money or expected return.

SPEAKER_2 (0:23)

To hear more about managing risk in the face of uncertainty, subscribe to PGIM's The Outthinking Investor in your favourite podcast app.

Katie Martin (0:36)

Pushkin.

If you had the power to tweet a stupid picture and send a stock 100% higher the next day, what would you do with it? Well, one person who seemingly does have that power is Roaring Kitty. He is back. He's that guy on the internet who sparked a meme stock craze in 2021 And he's done it again on GameStop shares. The shares are going loopy, but what does it all mean? What does it tell us about how investors are behaving at the moment and what risk appetite is like in markets?

Today on the show, really, are we doing this crap again? Have we learned nothing? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here in London, and I'm joined down the line from fellow, weary, Unhedged newsletter supremo, Rob Armstrong.

Rob Armstrong (1:32)

I prefer to be known as squawking platypus, which is my internet handle.

Katie Martin (1:39)

All right then, squawking platypus.

For listeners who are deeply confused and wondering, what the heck we're talking about, what the heck are we talking about? Who is this roaring kitty person?

Rob Armstrong (1:52)

So Keith Gill, who is the real life version of Internet's roaring kitty, is a trader who worked at a rather dowdy insurance company in Massachusetts, an analyst, but also had an online identity on Reddit boards and Twitter and so forth, where he presented his ideas. And somewhat mysteriously, one of those ideas, in particular GameStop, caught fire in 2021 and made roaring kitty into quite a famous person, and drove that stock to the moon, as I believe the young people say.

Katie Martin (2:35)

So, in those heady days in early 2021, which just feels like a whole different age, like shares in GameStop, which is like a sort of rubbish video games, consoles retailer.

Just madness. Like shares in this thing went up like 2000%, because for some weird reason, roaring kitty, Keith Gill, aka deep effing value. This is a family show, Rob, so we're not allowed to swear on the internet. Yeah, just this kind of internet army on Reddit latched on to his investment thesis and sent this thing absolutely crazy.

Rob Armstrong (3:10)

There was a kind of narrative that took hold, which is that GameStop was actually a company with a lot of potential and a lot of wicked, rich, manipulative, institutional investor types, hedge funds, whoever were somehow keeping it down and were short it, and the army of individual investors was storming the castle, pitchforks and torches in hand to set GameStop free.

Broadly speaking, this was not true, but the phenomenon was very interesting. The institutional investors who were short this thing did in fact get smoked, and it did show the power in a highly automated market. It showed the power of a bunch of people chatting on the internet and deciding all to buy one stock at once and then hodl. Is that how you pronounce it, Katie?

Katie Martin (4:09)

Hodl.

Rob Armstrong (4:11)

Hold on for dear life.

Katie Martin (4:13)

Yes, exactly.

Rob Armstrong (4:15)

Yes.

Katie Martin (4:16)

This comes from the crypto world, like whatever it is you buy, just hold on to it. Diamond hands.

Rob Armstrong (4:20)

This narrative was so appealing indeed that they made a movie about it called Dumb Money, which was pretty good.

Katie Martin (4:26)

There's literally a whole film about this, and yet, here we are doing it again.

Rob Armstrong (4:30)

We are doing it again.

Katie Martin (4:32)

This ended up being like an actually really interesting thing, even for like the proper hardcore markets nerds who obsess about like the intricacies of how trades actually happen, which to be clear is a very, very boring field.

But fundamentally like Robin Hood, the online brokerage very popular with young people in the States just couldn't handle the volume of trade requests that was coming in. Cause it looked like basically every man in their twenties in the United States was buying this one stock at the same time. And the thing just exploded higher and yet Robin Hood couldn't handle it. And so this has ended up cause Robin Hood had to switch it off, right? They pull the plug and say, okay, no one else can buy.