“Smart Money” Can Be Dead Wrong
The “smart” money and financial media posture all the time around how you are supposed to invest your money.
The crazy thing about the financial talking heads is that they actually believe what they are saying, despite often being dead wrong.
Remember, their goal isn’t to make you money. Their goal is to get you to give them your money so they can make money off you.
Let’s just say we take a different approach.
One of the biggest ways they cost investors money is by quickly dismissing stocks that are going up.
They don’t dismiss all stocks that go up. Just the ones that go up for reasons they don’t approve of or (more aptly) understand.
This has been the case with the stocks termed the “meme stocks” and especially with the most famous of these companies — GameStop (GME).
I am sure you have heard a lot about GameStop over the past several years and heard it dismissed by the “smart” money.
The quick version is that it is a retailer that was founded four decades ago that focuses on selling software and video games.
Over the years, it expanded to over 6,000 locations globally. But in the last decade, like many retailers, it has seen a big decline in its business.
The decline in the business led to a big decline in the stock. And by 2019, the stock was ridiculously cheap, trading at a very low multiple of earnings. It was basically left for dead.
That attracted the attention of several successful investors. One of those was an entrepreneur named Ryan Cohen who had founded the online pet retailer Chewy.
Cohen went out and bought hundreds of millions of dollars of stock and got involved directly. He was eventually appointed Chairman and CEO and took control of the company.
In 2021, the situation got a little crazy. Remember, this was the time when the markets were soaring and full of speculation in penny stocks, crypto and NFTs.
In January of that year, the stock took off on the back of a rabid group of investors on the social app Reddit, which sent the stock soaring.
Here is a chart of what has happened with the stock in the last few years with that period circled.
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