Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Way back in twenty nineteen,
Speaker 1: financial analyst Keith Gill started buying shares in GameStop, a
Speaker 1: lot of shares for years. He posted about his position
Speaker 1: on YouTube.
Speaker 2: Himself was one of the most compelling asymmetric opportunities in
Speaker 2: the market today.
Speaker 3: Really, I don't understand howy can disagree with that.
Speaker 2: That's why it's the top position.
Speaker 1: Gill argued on YouTube and on the Reddit forum All
Speaker 1: Street Bets that GameStop stock was undervalued because greedy hedge
Speaker 1: funds were betting the company would fail. He thought these
Speaker 1: funds just didn't care about brick and mortar businesses with
Speaker 1: real value. Well, you probably remember what happened next. We've
Speaker 1: never seen redit traders have such an impact on the
Speaker 1: stock market such as we've seen with games stopt.
Speaker 2: Just what is going on with game stop shares closing
Speaker 2: it over three hundred and forty seven dollars a piece.
Speaker 3: Here, you're witnessing the French revolution of finance.
Speaker 1: Tends, rocket ships, diamond hands. For a brief period in
Speaker 1: early twenty twenty one, when so many of us were
Speaker 1: trapped at home, the particular language of Wall Street Bets
Speaker 1: became mainstream. That's when a group of Motley retail investors
Speaker 1: collaborated to buy shares in game Stop and then in
Speaker 1: AMC in order to send their stock prices to the moon.
Speaker 1: The group's leader was Gil, who by this point in
Speaker 1: time was known as Roaring Kitty. Whoa oh damn, what
Speaker 1: a day. Regular investors and sophisticated hedge funds made and
Speaker 1: lost millions during the memestock craze. But a few years on,
Speaker 1: with the benefit of hindsight, the rise of memestock seemed
Speaker 1: less like the French Revolution of finance and more like
Speaker 1: a product of what happens when we're all bored at
Speaker 1: home with a bit of extra savings, or so it
Speaker 1: seemed until this week.
Speaker 2: Roaring Kitty is back, at least on social media, and
Speaker 2: so too is the memesock madness for GameStop it is
Speaker 2: our stat.
Speaker 1: After a three year hiatus. On Sunday, Guild posted an
Speaker 1: image on x It's a crude drawing of a guy
Speaker 1: leaning forward in his chair holding a video game controller.
Speaker 1: Well that reanimated legions of redditors, who once again started
Speaker 1: posting rocket ships and started asking are you ready for
Speaker 1: the ride?
Speaker 3: Certainly feels like twenty twenty one all over again. You
Speaker 3: had game Stop surging as much as one hundred and
Speaker 3: thirty percent. That's the motions early twenty twenty one, AMC
Speaker 3: climbing as much as three hundred percent.
Speaker 1: As of Friday, the rally seems to have fizzled. Those
Speaker 1: shares in GameStop are still up over twenty percent for
Speaker 1: the year. Let's attempting to dismiss this week's frenzy as
Speaker 1: a kind of sad attempt to recapture the drama of
Speaker 1: twenty twenty one. But Bloomberg's Matt Levine has a theory
Speaker 1: about what happened back then and what's been happening in
Speaker 1: stock markets ever since.
Speaker 2: I think people learned a real lesson from this in
Speaker 2: terms of like how a stock can be valued.
Speaker 1: Today. On the show Our Best Attempt at memestock Analysis,
Speaker 1: we ask what a shift away from investing based on
Speaker 1: the fundamentals of companies could mean for anyone putting money
Speaker 1: in the stock market. I'm David Gerat, and this is
Speaker 1: the big take from Bloomberg News. Hey, Matt, it's good
Speaker 1: to see you. Good to see you, Matt Levine, writes
Speaker 1: Bloomberg's Money Stuff newsletter, and he recently suggested that the
Speaker 1: MBA curriculum shouldn't just include a course on stock market analysis,
Speaker 1: but also a course on memestocks. Meme financial markets shares
Speaker 1: in companies like GameStop, AMC, and Hertz have been operating
Speaker 1: recently under a completely different set of rules. I told
Speaker 1: Matt I liked the idea and I wanted to take
Speaker 1: the course for a dry run. So say it's day
Speaker 1: one of meme financial markets, and I haven't been in
Speaker 1: a classroom in a long time, but I remember. Professor
Speaker 1: comes in, gives the students the lay of the land,
Speaker 1: introduces them to the topic at hand. Let's start the professor, levine,
Speaker 1: what is a meme stock? How have we come to
Speaker 1: define the term?
Speaker 2: A meme stock is a stock that I mean, this
Speaker 2: is my definition, so I'm teaching the class. It's a
Speaker 2: stock that people trade and people buy because they find
Speaker 2: it entertaining, because they're part of some sort of like
Speaker 2: usually online community that gives them a sense of kinship
Speaker 2: and fun, and they buy it through that community rather
Speaker 2: than because they've done deep fundamental analysis and decided that
Speaker 2: the stock is undervalued.
Speaker 1: Well, let's take a beat here, Professor Levine. Before we
Speaker 1: had meme financial analysis, there was fundamental analysis. And I
Speaker 1: wonder if you can just draw the distinction between the
Speaker 1: two things.
Speaker 2: Oh, you know, like you look at you know, you
Speaker 2: look at GameStop and you say, I mean part of
Speaker 2: the case is like the stock was so low at
Speaker 2: some point that you could say even if they just
Speaker 2: like sold this thing for parts and just like give
Speaker 2: back the cash, there would probably be enough to more
Speaker 2: than pay for the stock. The deep value investor is
Speaker 2: the person who's like, actually, this company is more cash
Speaker 2: than the stock is worth. Right, But also, like with
Speaker 2: game Stop, you could make you know, you could make
Speaker 2: a bold case about game Stop somehow becoming a better business, right,
Speaker 2: Like I mean if you sort of intuitively think, oh,
Speaker 2: it's a mall based video game retailer. Yeah, it sounds
Speaker 2: like it's kind of on the way out. Games are
Speaker 2: mostly downloaded online now, But you could tell a story
Speaker 2: about game Stop like pivoting to an online e commerce approach.
Speaker 2: And like, if you think of this as like a
Speaker 2: declining business, like you know, how much can it possibly
Speaker 2: be worth? But if you think they're going to turn
Speaker 2: it around and become actually a massively growing business, then
Speaker 2: that's good, right, And that's the sort of kind of
Speaker 2: fundamental analysis people did as like the first step of
Speaker 2: this process.
Speaker 1: And even beyond Game Stop itself, this idea of fundamental
Speaker 1: analysis of thinking about how good the underlying business is
Speaker 1: before you buy a stock, well, it's sort of baked
Speaker 1: into financial markets.
Speaker 2: I think, like five years ago. If you asked people, like,
Speaker 2: what are financial markets for, like, you get like a
Speaker 2: fairly straightforward answer, which is that they're like to allocate
Speaker 2: capital to like the best uses, and that like, there
Speaker 2: are a lot of very smart people who do a
Speaker 2: lot of work using data to determine whether price or
Speaker 2: other stocks are over or underpriced, and you get a
Speaker 2: market that like makes lots of mistakes, but like is
Speaker 2: ultimately sort of pointed in the direction of having accurately
Speaker 2: priced stocks. And one thing that does is that it
Speaker 2: allows retirement savers to put their money into the market
Speaker 2: and essentially earn like the returns to business right Like,
Speaker 2: Essentially like the economy grows and like corporations make money
Speaker 2: and you can get a piece of that as a
Speaker 2: retirement saver. Not because you've done a lot of fundamental assets,
Speaker 2: but because the market kind of is right and the
Speaker 2: market kind of gets the fair prices, right. So that's
Speaker 2: a good aspect of modern of you know, pre twenty
Speaker 2: twenty one financial markets. And then the other good aspect
Speaker 2: is like, yeah, if you're running a company, like you
Speaker 2: can raise money to do a thing, and that, you
Speaker 2: know is if you're running a big company and you
Speaker 2: need to build a factory, you can issue stock to
Speaker 2: build a factory. But more fundamentally, if you're running if
Speaker 2: you have a startup idea, you can sell stock to
Speaker 2: venture capitalists because they know somewhere down the line they'll
Speaker 2: be able to sell into a public market that like
Speaker 2: appropriately values companies. Right, So there's always like apparatus of
Speaker 2: like funding and like sharing the benefits of economic growth,
Speaker 2: and none of that is like and it's a fun gamble.
Speaker 1: Right, But that that wasn't always the case.
Speaker 2: Yeah, if you go back, like, you know, one hundred years,
Speaker 2: like it would be you know, there was a lot
Speaker 2: of fraud and insider trading and like not a lot
Speaker 2: of fundamental data, not a lot of disclosure, and so
Speaker 2: you did have financial markets that were much more of
Speaker 2: a gambling game, right, And I think that like part
Speaker 2: of the last one hundred years of securities has been
Speaker 2: securities regulation to make better disclosure, and it's been people
Speaker 2: getting better at analyzing financial markets so that you could
Speaker 2: with a straight face tell this story about efficient markets
Speaker 2: and about allocating capital to its best uses. But like, right,
Speaker 2: there was that residue of like this is a fun
Speaker 2: gambling game, this is a hobby, right, and people found
Speaker 2: a way to bring that back back.
Speaker 1: In twenty twenty one, you wrote, and I quote, if
Speaker 1: we are still here in a month, I will absolutely
Speaker 1: freak out. And I know it's unfair to hold you
Speaker 1: to this, but are you surprised that we're still here,
Speaker 1: that we're living through this again?
Speaker 2: That's the line that has been quoted at me more
Speaker 2: anything else I've written. I think, to be clear, what
Speaker 2: I meant was like, it's fun to have fun. It's
Speaker 2: fun to like, you know, have this like meme moment,
Speaker 2: but like you can't like have a stock traded irrational
Speaker 2: crisis for months and months and months. I think I
Speaker 2: was basically wrong. I think like games Up did come
Speaker 2: down after that first wild month, but like it stayed
Speaker 2: pretty high for a pretty long time, but then it
Speaker 2: did dissipate and like three years on, like it's you
Speaker 2: wouldn't have said a month ago that game Stop was
Speaker 2: still in that like meme driven boom, but then it
Speaker 2: came back this week and am I freaked out by that?
Speaker 2: Like I don't know.
Speaker 1: So moving past twenty twenty one, how is your thinking
Speaker 1: about the significance of what happened then evolved or change
Speaker 1: what's shifted in terms of how you see the significance
Speaker 1: of that moment.
Speaker 2: I think there's there's two parts of that moment. There's
Speaker 2: like the particulars of like the message boards and the
Speaker 2: stocks that were involved, and like the entertainment value there.
Speaker 2: It feels transitory and it's like interesting and weird that
Speaker 2: like they're trying to get the band back together and
Speaker 2: like it's yeah, sort of work like more than I
Speaker 2: would have expected, but like it's kind of fizzled. But
Speaker 2: I do think that there's this like bigger picture of
Speaker 2: and I tie this up often to crypto people like
Speaker 2: realized that you can have like an electronically traded token
Speaker 2: that has value because people have agreed that it has value, right,
Speaker 2: and like that's sort of always been true in some form,
Speaker 2: but it's like it's very sort of like crisply isolated
Speaker 2: in things like bitcoin and doagecoin and and all the
Speaker 2: sort of meme crypto tokens. But it's also more or
Speaker 2: less true of game Stop. You know, you can be like,
Speaker 2: if everyone wants to buy game Stop at four hundred
Speaker 2: and eighty dollars a share, and nobody wants to sell
Speaker 2: it for less than that, then like, you get a
Speaker 2: four hundred eighty dollars share a price for game Stop,
Speaker 2: and if everyone wants to buy it, then like that
Speaker 2: that's what it's worth. And like, in some ways that's
Speaker 2: the lesson of the meme slock craze. It's like, if
Speaker 2: you want to pay a high price for it and
Speaker 2: everyone else does, and like, that's what it's worth.
Speaker 1: So that's the first lesson in memestock analysis, that if
Speaker 1: a bunch of people want to pay more for a
Speaker 1: stock than its value unrelated to how profitable that company
Speaker 1: is now or could be in the future, well that's
Speaker 1: what it's worth. Coming up after the break, what memestock
Speaker 1: mania means for those of us who invest in stocks.
Speaker 1: It's easy to see memestocks and crypto as kind of
Speaker 1: their own thing, a special part of markets for those
Speaker 1: of us who like to take risks, which to be clear,
Speaker 1: is not me, but Matt Levine covers a lot more
Speaker 1: than just the wilder parts of the market in his
Speaker 1: Money Stuff newsletter. So I asked Matt, how we should
Speaker 1: view what's happened this week and what happened in twenty
Speaker 1: twenty one in the broader context of what's happening in markets?
Speaker 1: Should we look at this in isolation? So, yes, it's
Speaker 1: the memestocks from back in twenty twenty one, it's crypto?
Speaker 1: Or do you see this as part and parcel of
Speaker 1: kind of a broader shift in how people view stocks
Speaker 1: or view the stock market.
Speaker 2: It's hard to answer that because, like, I think that
Speaker 2: professional investors are sort of embarrassed by this and like
Speaker 2: wish it were you know, kind of wish it would
Speaker 2: go away and be more rational. Right, A lot of people, Yeah,
Speaker 2: there are a lot of people out there who like
Speaker 2: their job is to buy stocks that are undervalued and
Speaker 2: like short stocks that are overvalued. And now that doesn't work,
Speaker 2: right because now, like, if it's overvalued, that probably means
Speaker 2: it'll be more overvalued, right, I think, like to a
Speaker 2: large segment of like the financial world, this is embarrassing.
Speaker 2: The other side of that question is like how do
Speaker 2: you regular people perceive the stock market? How do like
Speaker 2: retail investors, ordinary investors purceie the stock market? And I
Speaker 2: think that part of that is, like for one hundred years,
Speaker 2: there's been this hobbyist component to investing, right, And part
Speaker 2: of that is, like some people find it fun to
Speaker 2: like analyze companies, and like there's like a gambling element, right,
Speaker 2: you have fun trying to beat the market. Some of
Speaker 2: it is like a sort of real economically motivated thing,
Speaker 2: where like you have a job where you feel you'll
Speaker 2: never get ahead and you'll never pay off your student loans,
Speaker 2: and like the stock market is this like sort of
Speaker 2: mysterious source of wealth and like if you do the
Speaker 2: right things in the stock market, you can get rich
Speaker 2: without like a lot of work. Right, It's like a
Speaker 2: perception that some people have always had. And in recent years,
Speaker 2: in the last like twenty years, the sort of like
Speaker 2: normal way of looking at the stock market has frankly
Speaker 2: become more boring. Right, people have really driven home the
Speaker 2: message of like use index funtons. You know, like people
Speaker 2: get like four roh one k's where they're putt into
Speaker 2: target dat funds that are just like there's one right,
Speaker 2: way to invest. So I'm like normal default way and
Speaker 2: we'll do it for you. You don't have to worry
Speaker 2: about it. You know, it's like buy Apple stock because
Speaker 2: you like Apple, computers like you. Just like you get
Speaker 2: the market, you get like the boring standard thing. And
Speaker 2: I think part of the Meme stock reaction is like
Speaker 2: a lot of the fund has been sucked out of
Speaker 2: normal investing, and so it's like popping up in this weird,
Speaker 2: like extremely fun focused area.
Speaker 1: A lot of this what we've been talking about sounds
Speaker 1: a lot like a casino, and I wonder where it's
Speaker 1: too too very much like one. Where are regulators in
Speaker 1: all of this? And I remember after the initial game
Speaker 1: stop saga, the SEC commissioned this report, made the report,
Speaker 1: publish this report. What did we learn from that? And
Speaker 1: what did we learn about their aptitude to navigate this
Speaker 1: world in which you have stocks like this?
Speaker 2: I think that I think that people are too hard
Speaker 2: on the SEC here, because the SEC regulates a number
Speaker 2: of things. Principally, it regulates like disclosure by companies. It's
Speaker 2: not in the business of preventing you from gambling on stocks, right,
Speaker 2: It's just not And like it is a little tiny
Speaker 2: bit like there are a couple of things, you know,
Speaker 2: like regulators have been critical of Robinhood because Robinhood used
Speaker 2: to like show confetti on the screen when you bought
Speaker 2: a stock, and they're like, that's gamifying stocks. That's making
Speaker 2: me exciting. It very confetti, And they're like, we don't
Speaker 2: want styck treading to be a game, but like fundamentally,
Speaker 2: like they're not going to ban buying stocks that you
Speaker 2: think will go up, right, And so like there's just
Speaker 2: like a lot of this beam stock stuff is i
Speaker 2: think embarrassing to the sec until like big institutional investors,
Speaker 2: but there's just like there's nothing illegal, there's nothing wrong
Speaker 2: with it. It's just like people like to buy stocks
Speaker 2: that they think will go up, and like that's that's
Speaker 2: not prohibited or really subject to regulation. Now. One thing
Speaker 2: that people are worried about in the initial bemstock boom
Speaker 2: and a little bit today is market manipulation, right, And
Speaker 2: then you could imagine some alternative facts where like you know,
Speaker 2: someone was like, a ah, I will manipulate up the
Speaker 2: price of the stock by like writing fake due diligence
Speaker 2: reports on Reddit and making people think that gamestop's business
Speaker 2: is going to the moon, and there's just like no
Speaker 2: evidence of that. And in fact, the people who wrote
Speaker 2: these like detailed due diligence posts about games stop seem
Speaker 2: to have really believed it, you know, and like made
Speaker 2: interesting points and we're clearly kind of honest, and like
Speaker 2: the big if you want to call it manipulative thing,
Speaker 2: was just that they all got together and said, let's
Speaker 2: all buy the stock to send it to the moon.
Speaker 2: And you could imagine a world where that was illegal,
Speaker 2: but I think in our world it's not like it's
Speaker 2: just you know, if you all want to get together
Speaker 2: and say let's buy the same stock, you can, it
Speaker 2: turns out.
Speaker 1: Professor Levin, I look forward to the course in full.
Speaker 1: But until then, let me ask you to put you
Speaker 1: on the spot once again. If you had to make
Speaker 1: a prediction that then invariably we're going to hold you
Speaker 1: in three years time, yes or no or memes stucks.
Speaker 1: You think a permanent feature of financial markets, now.
Speaker 2: I think I'll be using that term in three years.
Speaker 2: I think that like exactly how this operates might change.
Speaker 2: But yeah, I think people learned a real lesson from
Speaker 2: this in terms of like how a stock can be valued,
Speaker 2: And I do think that like this is gonna be
Speaker 2: kind of a permanent tool in the kit.
Speaker 1: Malvin, thank you, thank you.
Speaker 2: Oh shoot, I'm sure extended to my podcast.
Speaker 1: I should have given you the entre for the shameless plug.
Speaker 1: How should I do that? Matt, you write the money
Speaker 1: Stuff newsletter. I here, there's another way that we can
Speaker 1: get your wisdom downloaded straight to our our brands.
Speaker 2: There's a money Stuff podcast, all right. This week we
Speaker 2: talked about memestocks.
Speaker 1: You can find the Money Stuff podcast wherever you get
Speaker 1: your podcasts, and you can sign up for Matt's newsletter
Speaker 1: at Bloomberg dot com. This is the Big Take from
Speaker 1: Bloomberg News. I'm David Gurat. This episode was produced by
Speaker 1: David Fox and Jessica Beck. It was mixed by Blake
Speaker 1: Maple's back check by Adriana Tapia. Our senior producers are
Speaker 1: Kim and Naomi Shavin, who also edited this episode. Our
Speaker 1: senior editor is Elizabeth Ponso. Nicole Beemster Borr is our
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