GameStop’s Rocket To Ride More Like A Lottery Shot?

Newton would have advised anyone considering a GameStop security “what goes up must come down.” In fact, this week again proved the scientist’s Theory of Gravity in the context of investing as GameStop stock prices soared, then, fizzled dramatically. While the GameStop and other stock run ups we’re witnessing are not tantamount to a Ponzi Scheme, maybe they aren’t so far behind as a number of early birds are claiming to be winners, while the worm droppings catchers no so much.

“They are a gamble, pure and simple,” warned the authors of the WSJ article titled, “Why You Should Think Twice Before Buying GameStop Stock.” Put another way, such mercurial buys are “not an investment or a trade.” Why? Because the prices you’re seeing are based on pure online speculation if not hysteria, and “have nothing to do with the true value” of the company’s stock. Indeed, before the recent buying frenzy, GameStop stock was tanking as the company’s business itself was struggling if not on the verge of tanking.

Oh, there’s that other WSJ article that relates how one 24-year-old trader said “the wild ride was almost as good as the enormous” high he got”, i.e., by turning a $500 bet into a $200K windfall. Yet, the subsequent “collapse” of the stock, the newspaper noted, made the experience more akin to buying a “lottery” ticket. “That means you should be prepared to lose every penny you put down,” the WSJ authors concluded. “If you can’t afford, or stomach, that sort of loss, don’t play.”

Davd Soul