May 15, 2024 • 21 mins
Unlock the secrets behind the meme stock madness. Steve Davenport and Clem Miller take a whirlwind tour through the rise and reign of stocks like AMC and GameStop, dissecting the cult followings these companies have garnered, thanks in part to mysterious Reddit icons such as Roaring Kitty. We contrast these phenomena with giants like Berkshire Hathaway, Tesla, and Nvidia, and ponder whether zeal among their investors brand them as semi-meme stocks. Delving deeper, we discuss how the meme stock surge—propelled by pandemic lockdowns and fiscal stimulus—continues to warp the investment world, weaving in the tales of Bitcoin and the Trump Media and Technology Group to showcase just how sentiment can outweigh solid fundamentals.
The line between sound investment and sheer speculation has never been more blurred than in the era of meme stocks. Amidst our conversation, we tackle the role of social media in steering investment choices and stress the vital importance of grasping a company's core financial health. Steve and Clem discuss the high-stakes game of options and leverage, and how such strategies can shape or shatter the investment outlook of a generation. As we close, we reflect on the uphill battle for credible, sound financial advice in a world where the siren song of swift financial gains echoes across the web, challenging the trust in conventional financial wisdom. Tune in for an episode that promises not just insights but a roadmap through the tempest of today's market trends.
Straight Talk for All - Nonsense for None
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Clem Miller (00:03):
Hello and welcome to Skeptic's Guide to Investing.
I'm Clem Miller and I'm herewith Steve Davenport, and today
we're going to be talking aboutso-called meme stocks.
As we know I'm sure you knowtoo meme stocks have a kind of
cult following Companies likeAMC and GameStop and others and
(00:28):
there's usually a what we wouldcall a belief leader.
You know somebody from Redditor you know somebody who's sort
of you know telling everybodywhat Roaring Kitty, telling
(00:50):
everybody what roaring kitty,roaring kitty correct, uh on
reddit or somewhere else who'ssaying, uh, that they should buy
, or signaling that they shouldbuy a particular stock at a
particular time, and, uh, andreally taking their advice
readers, taking their advicefrom these characters.
So, steve, what's going on hereIs this sort of like Berkshire
(01:16):
Hathaway, tesla or Nvidia.
I mean, these are realcompanies Berkshire Hathaway,
tesla and Nvidia.
Should we look at those as kindof semi-meme stocks, or how
would you compare these memestocks to Berkshire Hathaway
,Tesla and Nvidia?
Steve Davenport (01:33):
Well, I started to look at the definition of
what people talked about withthe meme stocks and they said it
was a cult-like following.
And I've been out to Omaha forthe Berkshire meeting because I
had a large client withBerkshire and I would say that
is a cult like following.
I mean, these people believe inwhat Buffett does and how he
(01:56):
does.
It is the only way to go and insome ways I use that as an
example to say there are thingsout there that we don't
understand and I don'tunderstand why there is this
effort for meme stocks.
I think that when you look atwhy we buy stocks at least you
(02:17):
and I, glenn I think it'sbecause they have earnings, they
have growth, they have acompetitive advantage, and I
think that those are the thingswe look at.
I don't wait for Roaring Kittyto tell me boy, now's the time
to get into some ASML.
I think that the chipmanufacturing is going to really
(02:39):
take off.
If it was that easy, ifeverybody could do that, don't
you think we would all just makemoney.
The question is, who's on theother side of this trade?
If Roaring Kitty says to buyGameStop, I'm not going to fight
GameStop, but I'm also going tolook at GameStop and say how
(03:00):
much of it is impacting theeconomy and why do I want to own
it if that area of used videosis only going to represent a
small part of the economy?
So I look at this whole memestock events as I thought they
were over and when we go backand look, it was a strange
(03:24):
combination of events thatcreated the meme stock
phenomenon and I'm asking are wedoing this again?
Is now it changed again to apoint where we're saying, hey,
we're going to redo what we didin 2021?
I got a question and say, no, Idon't think we can, because
(03:45):
that time was very special For acouple of reasons.
Clem Miller (03:51):
Well, I tend to agree with you, but if you look
at around Problem is, if youlook around now you actually see
some Meme stock like behavior,even beyond the traditional meme
stocks.
You've got, for example, bitcoin, which was doing quite well a
(04:12):
few years ago and has recentlydone pretty well again, despite
the enormous amount ofbankruptcies and litigation and
criminal convictions that we'veseen over the years.
And yet Bitcoin is still doingwell and, as we know, bitcoin
has no earnings.
(04:33):
Bitcoin has no substance beyondjust the sentiment of those who
buy and sell it.
I'd also point out, withoutgetting into politics, I'd point
out that there is what I wouldcall a mega mean stock, which is
this DJT or Trump Media andTechnology, and yet is buoyed,
(04:55):
in terms of its share price andits market capitalization, by
(05:18):
those who expect theirpresidential candidate, trump,
to win an election and make it abig platform for everybody.
So, yeah, I think that's a megameme stock.
So you've got all this.
You've got the mega meme stock,you've got GameStop, you've got
AME, you've got Bitcoin.
There's a lot of sentiment outthere that is not driven by
(05:42):
fundamentals.
Steve Davenport (05:44):
Yeah, when I look at what happened in 2021,
we were in a situation where wewere still kind of locked down.
People had extra time becausethey weren't commuting.
And then also, people had thesepayments they got from the
government and younger peoplesaid, hey, I can take that
payment and I can double, triple, quadruple it in a couple of
weeks.
That's a better use of my timethan what else.
(06:06):
I could double, triple,quadruple it in a couple of
weeks.
That's a better use of my timethan what else I could be doing.
So there was a lot of liquidity.
And again, the two names, AMCand GameStop, were both much
smaller.
So, when we look at the numberof shares, gamestop had 67
million shares in 2021, and nowthey have almost 300 million
(06:27):
shares.
So they've issued more shares.
Therefore, the impact that thesepeople are going to have is
going to be much different.
We don't have as much free cashflow.
We don't have as muchindividuals who have savings
balances because of thegovernment programs.
So I think that it's differentthis time, and it is different
(06:50):
because there isn't as much freecash.
There isn't as much of anability to manage some of these.
Tesla is too big.
Tesla can't be a meme stock,because you can't influence
Tesla that quickly or thateasily by just saying on Reddit
(07:10):
hey, I think we should buy Tesla.
There just isn't that muchindividual retail liquidity that
is going to push that up.
Look at some of the names in asmaller space and, yes, we will
see stuff, and DJT is a goodexample, bitcoin, a little
bigger example, and I would saythat Bitcoin is partially about
(07:35):
meme and partially about thisidea of safety, as inflation and
other things cause people tolose respect or confidence in US
dollar and large governmentsand establish currencies.
I think there's a lack ofrespect or a lack of
understanding that some of thesepeople buying these
(07:57):
alternatives really don't have afull understanding of what's
going to happen.
When there is a liquiditycrisis and people need liquidity
, they're going to sell thethings that are going to be more
volatile first, because theywant to stabilize and bring down
(08:18):
their volatility and theiroverall portfolio.
But is the meme period back?
Clem Miller (08:29):
I think it could be for period of time where you
have sort of a youth protest youknow unrest in this country and
(08:58):
of course we see that withrespect to the Gaza situation.
But you know, in a way, withthese meme stocks, this is sort
of a way to go after Wall Street, sort of like Occupy Wall
Street was.
Those protests were a number ofyears ago.
This seems like a way of beingable to use the system against
(09:21):
the system.
Do you agree with that?
Steve Davenport (09:24):
Yes.
Clem Miller (09:24):
I think there's a lot of.
Steve Davenport (09:27):
I hate the man.
The man makes the money and Iwant to do things to hurt the
man, right?
So I I believe that when youlook at these things, there's
usually more than one motivation, right?
I think that some people likethe idea of earning money, but
they also like the idea thatsomebody else is going to help
them to do it.
(09:47):
And so when, when I look atthis, I'd say, well, how do I
know?
When I bought it, I made money.
Now, when do I sell?
And that's that second part thatdoesn't seem as democratic.
We all say, hey, we can all dothis together.
We all get online, we all fightthe big man, wonderful.
But then I say, well, when dowe stop fighting and just take
(10:10):
our money and go home?
Is that the you know?
Is that the objective?
I think it should be, becauseyou can.
You can take your profits fromthe man for a period of time,
but eventually, you know hemight start to take some, some
back from you and real, realinvestors both real investors
(10:32):
and gamblers need to know whento cash in right.
I look at this and say this isspeculation, this is an
investment.
We're just speculating that wethink gamestop is going to keep
going up and my question is what?
What's that based on what?
What are the fundamentalsbehind it and how do you know
that you're right?
(10:52):
And I would look at people andsay I don't think you can really
tell me there's a system here.
So therefore I don't think youcan say there's an investment
here If it's not based onsomething that we can track,
understand and monitor, thenwe're just doing something based
on an idea or an image.
(11:12):
And I love the Roaring Kitty andI love some of the TikTok
videos and I love some of thecrushing of the hedge fund
people.
I mean, who doesn't like a goodcartoon?
Everybody likes a good cartoon.
Everybody likes a good meme.
And therefore we shouldcelebrate this as entertainment.
We shouldn't celebrate it asinvestment.
(11:35):
If we give more attention to it, what we're doing is we're
diverting ourselves from thereal work of trying to
understand how to add value andhow to pick the best companies.
How to pick the best companies.
These are not the bestcompanies.
They just simply are not.
So I look at it and say our jobis to come up with better
companies, not come up withbetter means.
Clem Miller (11:59):
So, steve, that's right.
So, steve, how do options playinto this?
Steve Davenport (12:07):
So there's a lot of small individuals who,
when they got their 1,400, 1,500from the government, they
started to use options becauseof the leverage involved.
If you look at a stock that's a$600 stock you need to spend
$600 to buy a share.
If I look at the option whichis a three-month or a six-month
option for $6, $12, $18, I canget exposure to that upside of
(12:32):
that individual company.
So the people in the memefrenzy are not just going to do
things that are mildly effective.
They're looking to speculateand they're looking to make as
much money as they can as fastas they can.
So what do you think they use?
They pull in that old steadyforce called leverage and when
(12:59):
you add more leverage, guesswhat?
You make more money when itgoes up, but when you use more
leverage, you lose more moneywhen it goes down.
There is no free lunch and whatI'd say is that options have
been used in this space before.
Options overall are improvingthe use around the world.
(13:20):
Option usage has increased.
People have taken moreshort-term views with options
than with stocks and thereforethe market has changed.
I don't like this change.
I don't think this change isgood for the average investor,
but we got to report on,understand and use what we know
(13:41):
in order to do the best we canfor clients.
Clem Miller (13:44):
So, Steve, has this spoiled markets for an age
group?
And by that question I meanwe've got a generation now of
folks who understand investingthrough the lens of meme stocks.
Are these folks ever going tolearn about real investing, or
(14:07):
have we lost a generation tosomething that's really just
gambling?
Steve Davenport (14:15):
I feel like we've got people who are going
online looking for solutions andI think when you look at what's
written online and it's notofficial, it's not a person
who's qualified to comment, it'sjust an individual saying what
they want.
And when you look at doing iton a platform where you don't
(14:36):
really identify the individual,it's just based on a name
Roaring Kitty and you don't knowhow qualified Roaring Kitty is
versus Warren Buffett.
So it's a strange world wherewe can, all of a sudden, we go
to a doctor, we look and saywhere did he go to school?
How long has he been doing this?
(14:56):
And yet, when we look forinvestment advice, we go to a
Reddit platform or we go tosocial media and we expect if
somebody's writing somethingthere, it's legitimate.
It's no longer legitimate thananything else that's written.
So therefore, how do we getpeople back to what I'll call
(15:18):
qualified advice?
And I think that it's a matterof trust.
I think that we've, as a unit,the American people have started
to not trust what's going on inother parts of their lives, and
I feel like that lack of trusthas a lot of reasons for it, but
(15:40):
it is impacting investing.
In my mind, it is allowing morepeople to just follow the herd,
and I think there's some wisdomin the herds, but I also think
there's some evil and somemistakes that are going to get
made when you follow the herd.
So I think social media hashelped create a mind that's more
(16:03):
chaotic and invested and thatultimately, more chaos and more
volatility and more peoplemaking irrational decisions
ultimately will lead to lowerresults and a bad feeling about
the market.
That bad feeling of the marketwill mean people distrust it and
they might not follow andinvest in it the way that you or
(16:25):
I did when we just said okay, Iget paid twice a month, I get
money put in twice a month andover time, I believe it will
work.
I'm starting to feel like thattype of investor who's going to
look to facts and information tosolve the problem is going to
be lost going forward, becausethose type of people won't tell
(16:50):
their kids to do this.
I feel like we've got now a gapin our education because of I
would say we didn't do a goodjob starting out to educate
everyone and now we've startedto see financial literacy get
more widespread, but we've stillgot a big problem there's still
(17:10):
a lot of people who aren'tbeing educated, and ultimately
that leads to more peoplefollowing meme-like ideas.
Clem Miller (17:18):
So, steve, let's turn to the mailbag.
Have either of you bought AMCor GameStop?
I have not.
How about you, steve?
Steve Davenport (17:28):
I'm also a no on that.
I think that for me, it comesdown to the same question of
crypto.
Do you understand why the priceis the way it is?
What are you investing in, whatadvantage or why this
particular investment?
And all of those questions forGameStop don't come up with the
right answer.
Clem Miller (17:49):
So I would say no.
So another question here in themailbag what do meme stocks
tell you about science and theart of investing?
Steve Davenport (18:03):
you about science and the art of investing
.
I would look at this and saythere is no science, because
people are basically doing thesethings on emotion, uh, and on
speculation, not on information.
Um, I like to think that whenyou think about great art, it's
hard to increase that great artto.
It's hard to trace that greatart to cash flow.
So there are things that you dobuy based on instinct and based
(18:24):
on the idea that it has somebeauty or some value, and so I
don't want to say that I wouldnever buy anything unless it has
cash flow.
But I do think that it's hardto identify that intrinsic value
and benefit for meme stocks,because I do like the idea of
(18:44):
hey, the hedge funds lose abillion dollars in their shorts.
I think it's a drop in thebucket, just like you talked
about with the Fed, wherethere's a lot of other factors
as to why hedge funds lose money, and I don't think you can
really it's kind of an illusionto tell people hey, what you did
by pushing the price up, thatreally hurt the hedge fund.
(19:04):
That hedge fund has norelations to understanding that
you were the one who was buyingall that game stuff caused this
rise to occur, your impact isless.
With more shares, there is notas much cash on hand from
individuals, so I would say yourimpact in hurting that hedge
(19:25):
fund is much less than it wasthe original time, and every
time thereafter it's going to beless.
Therefore, this isn't somethingthat I think has room to grow.
I think this is something thatis going to get more and more
regulated and more and moresqueezed out so that it will be
harder and harder to achieve,and I think, ultimately, that's
(19:46):
probably good.
Clem Miller (19:49):
Yeah, I mean, I think I totally agree with you,
steve, and I would say that thechallenge for regulators and for
institutional investors is tosomehow manage to control this
herd of meme investors, becausethat's essentially what it is.
It's a herd, it's behavioralfinance run amok.
(20:13):
They've got to do something tocontrol it more.
I don't mean squash itnecessarily, but to squeeze out
some of the excesses, just likethey've squeezed out excesses in
other areas over the last fewdecades.
So I think with that unless,steve, you have anything more to
(20:36):
add I would say that weappreciate everybody listening
to the podcast Skeptic's Guideto Investing.
We appreciate any comments youmight want to make to us over
email or text or whatever, andwe look forward to our next
(20:57):
podcast.
I hope you do as well.
So thank you everybody forlistening to us.
Bye-bye.
Hello and welcome to Skeptic's Guide to Investing.
I'm Clem Miller and I'm herewith Steve Davenport, and today
we're going to be talking aboutso-called meme stocks.
As we know I'm sure you knowtoo meme stocks have a kind of
cult following Companies likeAMC and GameStop and others and
(00:28):
there's usually a what we wouldcall a belief leader.
You know somebody from Redditor you know somebody who's sort
of you know telling everybodywhat Roaring Kitty, telling
(00:50):
everybody what roaring kitty,roaring kitty correct, uh on
reddit or somewhere else who'ssaying, uh, that they should buy
, or signaling that they shouldbuy a particular stock at a
particular time, and, uh, andreally taking their advice
readers, taking their advicefrom these characters.
So, steve, what's going on hereIs this sort of like Berkshire
(01:16):
Hathaway, tesla or Nvidia.
I mean, these are realcompanies Berkshire Hathaway,
tesla and Nvidia.
Should we look at those as kindof semi-meme stocks, or how
would you compare these memestocks to Berkshire Hathaway
,Tesla and Nvidia?
Steve Davenport (01:33):
Well, I started to look at the definition of
what people talked about withthe meme stocks and they said it
was a cult-like following.
And I've been out to Omaha forthe Berkshire meeting because I
had a large client withBerkshire and I would say that
is a cult like following.
I mean, these people believe inwhat Buffett does and how he
(01:56):
does.
It is the only way to go and insome ways I use that as an
example to say there are thingsout there that we don't
understand and I don'tunderstand why there is this
effort for meme stocks.
I think that when you look atwhy we buy stocks at least you
(02:17):
and I, glenn I think it'sbecause they have earnings, they
have growth, they have acompetitive advantage, and I
think that those are the thingswe look at.
I don't wait for Roaring Kittyto tell me boy, now's the time
to get into some ASML.
I think that the chipmanufacturing is going to really
(02:39):
take off.
If it was that easy, ifeverybody could do that, don't
you think we would all just makemoney.
The question is, who's on theother side of this trade?
If Roaring Kitty says to buyGameStop, I'm not going to fight
GameStop, but I'm also going tolook at GameStop and say how
(03:00):
much of it is impacting theeconomy and why do I want to own
it if that area of used videosis only going to represent a
small part of the economy?
So I look at this whole memestock events as I thought they
were over and when we go backand look, it was a strange
(03:24):
combination of events thatcreated the meme stock
phenomenon and I'm asking are wedoing this again?
Is now it changed again to apoint where we're saying, hey,
we're going to redo what we didin 2021?
I got a question and say, no, Idon't think we can, because
(03:45):
that time was very special For acouple of reasons.
Clem Miller (03:51):
Well, I tend to agree with you, but if you look
at around Problem is, if youlook around now you actually see
some Meme stock like behavior,even beyond the traditional meme
stocks.
You've got, for example, bitcoin, which was doing quite well a
(04:12):
few years ago and has recentlydone pretty well again, despite
the enormous amount ofbankruptcies and litigation and
criminal convictions that we'veseen over the years.
And yet Bitcoin is still doingwell and, as we know, bitcoin
has no earnings.
(04:33):
Bitcoin has no substance beyondjust the sentiment of those who
buy and sell it.
I'd also point out, withoutgetting into politics, I'd point
out that there is what I wouldcall a mega mean stock, which is
this DJT or Trump Media andTechnology, and yet is buoyed,
(04:55):
in terms of its share price andits market capitalization, by
(05:18):
those who expect theirpresidential candidate, trump,
to win an election and make it abig platform for everybody.
So, yeah, I think that's a megameme stock.
So you've got all this.
You've got the mega meme stock,you've got GameStop, you've got
AME, you've got Bitcoin.
There's a lot of sentiment outthere that is not driven by
(05:42):
fundamentals.
Steve Davenport (05:44):
Yeah, when I look at what happened in 2021,
we were in a situation where wewere still kind of locked down.
People had extra time becausethey weren't commuting.
And then also, people had thesepayments they got from the
government and younger peoplesaid, hey, I can take that
payment and I can double, triple, quadruple it in a couple of
weeks.
That's a better use of my timethan what else.
(06:06):
I could double, triple,quadruple it in a couple of
weeks.
That's a better use of my timethan what else I could be doing.
So there was a lot of liquidity.
And again, the two names, AMCand GameStop, were both much
smaller.
So, when we look at the numberof shares, gamestop had 67
million shares in 2021, and nowthey have almost 300 million
(06:27):
shares.
So they've issued more shares.
Therefore, the impact that thesepeople are going to have is
going to be much different.
We don't have as much free cashflow.
We don't have as muchindividuals who have savings
balances because of thegovernment programs.
So I think that it's differentthis time, and it is different
(06:50):
because there isn't as much freecash.
There isn't as much of anability to manage some of these.
Tesla is too big.
Tesla can't be a meme stock,because you can't influence
Tesla that quickly or thateasily by just saying on Reddit
(07:10):
hey, I think we should buy Tesla.
There just isn't that muchindividual retail liquidity that
is going to push that up.
Look at some of the names in asmaller space and, yes, we will
see stuff, and DJT is a goodexample, bitcoin, a little
bigger example, and I would saythat Bitcoin is partially about
(07:35):
meme and partially about thisidea of safety, as inflation and
other things cause people tolose respect or confidence in US
dollar and large governmentsand establish currencies.
I think there's a lack ofrespect or a lack of
understanding that some of thesepeople buying these
(07:57):
alternatives really don't have afull understanding of what's
going to happen.
When there is a liquiditycrisis and people need liquidity
, they're going to sell thethings that are going to be more
volatile first, because theywant to stabilize and bring down
(08:18):
their volatility and theiroverall portfolio.
But is the meme period back?
Clem Miller (08:29):
I think it could be for period of time where you
have sort of a youth protest youknow unrest in this country and
(08:58):
of course we see that withrespect to the Gaza situation.
But you know, in a way, withthese meme stocks, this is sort
of a way to go after Wall Street, sort of like Occupy Wall
Street was.
Those protests were a number ofyears ago.
This seems like a way of beingable to use the system against
(09:21):
the system.
Do you agree with that?
Steve Davenport (09:24):
Yes.
Clem Miller (09:24):
I think there's a lot of.
Steve Davenport (09:27):
I hate the man.
The man makes the money and Iwant to do things to hurt the
man, right?
So I I believe that when youlook at these things, there's
usually more than one motivation, right?
I think that some people likethe idea of earning money, but
they also like the idea thatsomebody else is going to help
them to do it.
(09:47):
And so when, when I look atthis, I'd say, well, how do I
know?
When I bought it, I made money.
Now, when do I sell?
And that's that second part thatdoesn't seem as democratic.
We all say, hey, we can all dothis together.
We all get online, we all fightthe big man, wonderful.
But then I say, well, when dowe stop fighting and just take
(10:10):
our money and go home?
Is that the you know?
Is that the objective?
I think it should be, becauseyou can.
You can take your profits fromthe man for a period of time,
but eventually, you know hemight start to take some, some
back from you and real, realinvestors both real investors
(10:32):
and gamblers need to know whento cash in right.
I look at this and say this isspeculation, this is an
investment.
We're just speculating that wethink gamestop is going to keep
going up and my question is what?
What's that based on what?
What are the fundamentalsbehind it and how do you know
that you're right?
(10:52):
And I would look at people andsay I don't think you can really
tell me there's a system here.
So therefore I don't think youcan say there's an investment
here If it's not based onsomething that we can track,
understand and monitor, thenwe're just doing something based
on an idea or an image.
(11:12):
And I love the Roaring Kitty andI love some of the TikTok
videos and I love some of thecrushing of the hedge fund
people.
I mean, who doesn't like a goodcartoon?
Everybody likes a good cartoon.
Everybody likes a good meme.
And therefore we shouldcelebrate this as entertainment.
We shouldn't celebrate it asinvestment.
(11:35):
If we give more attention to it, what we're doing is we're
diverting ourselves from thereal work of trying to
understand how to add value andhow to pick the best companies.
How to pick the best companies.
These are not the bestcompanies.
They just simply are not.
So I look at it and say our jobis to come up with better
companies, not come up withbetter means.
Clem Miller (11:59):
So, steve, that's right.
So, steve, how do options playinto this?
Steve Davenport (12:07):
So there's a lot of small individuals who,
when they got their 1,400, 1,500from the government, they
started to use options becauseof the leverage involved.
If you look at a stock that's a$600 stock you need to spend
$600 to buy a share.
If I look at the option whichis a three-month or a six-month
option for $6, $12, $18, I canget exposure to that upside of
(12:32):
that individual company.
So the people in the memefrenzy are not just going to do
things that are mildly effective.
They're looking to speculateand they're looking to make as
much money as they can as fastas they can.
So what do you think they use?
They pull in that old steadyforce called leverage and when
(12:59):
you add more leverage, guesswhat?
You make more money when itgoes up, but when you use more
leverage, you lose more moneywhen it goes down.
There is no free lunch and whatI'd say is that options have
been used in this space before.
Options overall are improvingthe use around the world.
(13:20):
Option usage has increased.
People have taken moreshort-term views with options
than with stocks and thereforethe market has changed.
I don't like this change.
I don't think this change isgood for the average investor,
but we got to report on,understand and use what we know
(13:41):
in order to do the best we canfor clients.
Clem Miller (13:44):
So, Steve, has this spoiled markets for an age
group?
And by that question I meanwe've got a generation now of
folks who understand investingthrough the lens of meme stocks.
Are these folks ever going tolearn about real investing, or
(14:07):
have we lost a generation tosomething that's really just
gambling?
Steve Davenport (14:15):
I feel like we've got people who are going
online looking for solutions andI think when you look at what's
written online and it's notofficial, it's not a person
who's qualified to comment, it'sjust an individual saying what
they want.
And when you look at doing iton a platform where you don't
(14:36):
really identify the individual,it's just based on a name
Roaring Kitty and you don't knowhow qualified Roaring Kitty is
versus Warren Buffett.
So it's a strange world wherewe can, all of a sudden, we go
to a doctor, we look and saywhere did he go to school?
How long has he been doing this?
(14:56):
And yet, when we look forinvestment advice, we go to a
Reddit platform or we go tosocial media and we expect if
somebody's writing somethingthere, it's legitimate.
It's no longer legitimate thananything else that's written.
So therefore, how do we getpeople back to what I'll call
(15:18):
qualified advice?
And I think that it's a matterof trust.
I think that we've, as a unit,the American people have started
to not trust what's going on inother parts of their lives, and
I feel like that lack of trusthas a lot of reasons for it, but
(15:40):
it is impacting investing.
In my mind, it is allowing morepeople to just follow the herd,
and I think there's some wisdomin the herds, but I also think
there's some evil and somemistakes that are going to get
made when you follow the herd.
So I think social media hashelped create a mind that's more
(16:03):
chaotic and invested and thatultimately, more chaos and more
volatility and more peoplemaking irrational decisions
ultimately will lead to lowerresults and a bad feeling about
the market.
That bad feeling of the marketwill mean people distrust it and
they might not follow andinvest in it the way that you or
(16:25):
I did when we just said okay, Iget paid twice a month, I get
money put in twice a month andover time, I believe it will
work.
I'm starting to feel like thattype of investor who's going to
look to facts and information tosolve the problem is going to
be lost going forward, becausethose type of people won't tell
(16:50):
their kids to do this.
I feel like we've got now a gapin our education because of I
would say we didn't do a goodjob starting out to educate
everyone and now we've startedto see financial literacy get
more widespread, but we've stillgot a big problem there's still
(17:10):
a lot of people who aren'tbeing educated, and ultimately
that leads to more peoplefollowing meme-like ideas.
Clem Miller (17:18):
So, steve, let's turn to the mailbag.
Have either of you bought AMCor GameStop?
I have not.
How about you, steve?
Steve Davenport (17:28):
I'm also a no on that.
I think that for me, it comesdown to the same question of
crypto.
Do you understand why the priceis the way it is?
What are you investing in, whatadvantage or why this
particular investment?
And all of those questions forGameStop don't come up with the
right answer.
Clem Miller (17:49):
So I would say no.
So another question here in themailbag what do meme stocks
tell you about science and theart of investing?
Steve Davenport (18:03):
you about science and the art of investing
.
I would look at this and saythere is no science, because
people are basically doing thesethings on emotion, uh, and on
speculation, not on information.
Um, I like to think that whenyou think about great art, it's
hard to increase that great artto.
It's hard to trace that greatart to cash flow.
So there are things that you dobuy based on instinct and based
(18:24):
on the idea that it has somebeauty or some value, and so I
don't want to say that I wouldnever buy anything unless it has
cash flow.
But I do think that it's hardto identify that intrinsic value
and benefit for meme stocks,because I do like the idea of
(18:44):
hey, the hedge funds lose abillion dollars in their shorts.
I think it's a drop in thebucket, just like you talked
about with the Fed, wherethere's a lot of other factors
as to why hedge funds lose money, and I don't think you can
really it's kind of an illusionto tell people hey, what you did
by pushing the price up, thatreally hurt the hedge fund.
(19:04):
That hedge fund has norelations to understanding that
you were the one who was buyingall that game stuff caused this
rise to occur, your impact isless.
With more shares, there is notas much cash on hand from
individuals, so I would say yourimpact in hurting that hedge
(19:25):
fund is much less than it wasthe original time, and every
time thereafter it's going to beless.
Therefore, this isn't somethingthat I think has room to grow.
I think this is something thatis going to get more and more
regulated and more and moresqueezed out so that it will be
harder and harder to achieve,and I think, ultimately, that's
(19:46):
probably good.
Clem Miller (19:49):
Yeah, I mean, I think I totally agree with you,
steve, and I would say that thechallenge for regulators and for
institutional investors is tosomehow manage to control this
herd of meme investors, becausethat's essentially what it is.
It's a herd, it's behavioralfinance run amok.
(20:13):
They've got to do something tocontrol it more.
I don't mean squash itnecessarily, but to squeeze out
some of the excesses, just likethey've squeezed out excesses in
other areas over the last fewdecades.
So I think with that unless,steve, you have anything more to
(20:36):
add I would say that weappreciate everybody listening
to the podcast Skeptic's Guideto Investing.
We appreciate any comments youmight want to make to us over
email or text or whatever, andwe look forward to our next
(20:57):
podcast.
I hope you do as well.
So thank you everybody forlistening to us.
Bye-bye.
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