Gordon: Surprising to see the return of the meme stock craze

CNBC Television
14 May 202404:20

TLDRIn a recent discussion, Todd Gordon shares his insights on the resurgence of meme stock trading. He notes that while the market is experiencing a transitional period, the current situation is not a simple return to the meme stock craze of 2020 and 2021. Gordon highlights the differences, such as the reduced short interest in stocks like GameStop, which diminishes the potential for a short-covering rally. He also reflects on the lessons learned from the previous frenzy, including the impact of pandemic stimulus checks and the surge in options trading. Gordon advises against chasing volatile stocks based on message board hype, instead encouraging a more disciplined approach to investing, particularly in companies experiencing significant growth due to advancements in A.I. technology.

Takeaways

  • 📈 The return of the meme stock craze is surprising and seems to be a different market dynamic rather than a return to the past frenzy.
  • 🤔 The current market is quieter and in a transitional period, possibly due to factors like the winding down of college classes.
  • 🧐 High inflation and the Nasdaq reaching new highs are not directly linked to the meme stock phenomenon.
  • 📚 Lessons from the 2020-2021 meme stock frenzy include the impact of pandemic stimulus checks and the surge in retail trading and options trading.
  • 🔥 The original meme stock craze was fueled by a significant amount of open short interest compared to the float, which is not the case in the current situation.
  • 💡 Short interest has significantly decreased, reducing the potential for a short-covering rally that characterized the previous craze.
  • 🚫 The speaker advises caution, suggesting that there are better investment opportunities outside of the meme stocks.
  • 💼 The company discussed (presumably GameStop) is expected to perform differently in the current economy, with people working and a transition period ongoing.
  • 📊 The speaker personally tried to short the stock via options during the last craze but was unsuccessful.
  • 🎓 Advice for younger investors and the CNBC audience is to focus on companies experiencing significant growth in the A.I. technology boom rather than chasing meme stocks.
  • 💰 There is a more disciplined way to make money by effectively deploying capital in growth areas, rather than speculating on stocks driven by message boards.

Q & A

  • What does Gordon think about the return of the meme stock craze?

    -Gordon finds it a bit surprising and believes that it's not a return but a different market dynamic with high inflation and the economy in a transitional period.

  • What was the backdrop for the original meme stock frenzy in 2020 and 2021?

    -The original meme stock frenzy was fueled by the pandemic and stimulus checks, with many people opening Robinhood accounts and engaging in options trading.

  • How does the current short interest compare to the float in the stock market?

    -In 2020, there was more open short interest than the float on the stock. Currently, the short interest is $65 million, which is 35% of the float.

  • What was Gordon's experience with Reddit boards during the meme stock craze?

    -Gordon had a negative experience where he was criticized on Reddit boards and felt skewered for his stance on the meme stock situation.

  • What is Gordon's view on the current state of the company mentioned in the script?

    -Gordon mentions that the company was expected to make 12 cents last year but only made 6 cents, indicating a different economic scenario.

  • Why does Gordon suggest caution when considering shorting the stock via options?

    -Gordon advises caution because there are many opportunities in the market, and the conditions that led to the original short-covering rally are not present.

  • What is Gordon's advice for younger investors looking to trade in volatile stocks like GameStop or AMC?

    -Gordon advises younger investors to focus on companies experiencing an A.I. technology boom and to deploy their capital in a more disciplined way rather than chasing cheap stocks pushed by message boards.

  • What does Gordon suggest as a reason for the current quietness in the market?

    -Gordon suggests that the market quietness could be due to a transitional period, possibly related to college students winding down in class.

  • What was the short interest percentage of the float during the 2020 meme stock craze?

    -During the 2020 meme stock craze, there was 275% of the float in short interest.

  • How does Gordon describe the current market dynamics compared to the past?

    -Gordon describes the current market dynamics as different, with a different economy and a different stock trading pattern.

  • What is Gordon's warning about the potential pitfalls of engaging in meme stock trading?

    -Gordon warns that there are too many opportunities to get involved in meme stock trading and that it can be risky, especially without a disciplined approach to capital deployment.

  • What is the current short interest in the stock market according to Gordon?

    -According to Gordon, the current short interest is $65 million.

  • What does Gordon believe is a more effective way to make money in the stock market?

    -Gordon believes that there is a more disciplined way to make money by effectively deploying capital in companies experiencing an A.I. technology boom.

Outlines

00:00

📈 Market Dynamics and Meme Stock Craze

The conversation begins with a discussion on the current state of the stock market, suggesting it is in a quiet transitional period. The speaker, Todd, refutes the idea of a 'return' to the meme stock craze, highlighting that the market dynamics and economy are different now. He mentions Roaring Kitty's involvement and the impact of high inflation and the NASDAQ's performance. The lessons learned from the 2020-2021 meme stock frenzy are also discussed, with a focus on the role of pandemic stimulus checks and the surge in options trading.

Mindmap

Keywords

💡Meme Stock

A 'meme stock' is a term used to describe a stock that gains popularity and experiences a rapid increase in price primarily due to social media attention and retail investor enthusiasm, rather than changes in the company's financial performance. In the script, the discussion revolves around the resurgence of meme stocks, which were notably driven by retail investors on platforms like Reddit during the 2020 market frenzy.

💡Short Interest

Short interest refers to the total number of shares that have been sold short by investors but have not yet been covered or closed out. It is an indicator of market sentiment and can influence stock price movements. In the transcript, the change in short interest from the 2020 peak is highlighted as a significant factor in the different dynamics of the current meme stock situation.

💡Robinhood

Robinhood is a stock trading platform popular among retail investors, known for its commission-free trading and user-friendly interface. The platform gained significant attention during the meme stock craze as it was widely used by individual investors to trade the stocks that were being discussed on social media. In the script, Robinhood is mentioned in the context of the 2020 meme stock frenzy.

💡Options Trading

Options trading involves buying or selling contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a set price before a certain date. It is a form of derivatives trading that can offer high leverage and potentially high returns but also carries significant risk. The script mentions a shift towards options trading among retail investors as part of the backdrop for the meme stock phenomenon.

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💡Short Cover Rally

A short cover rally occurs when short sellers, who have sold shares they do not own with the expectation of buying them back at a lower price, are forced to buy back the shares to cover their positions due to a rising stock price. This buying can further drive up the stock price. The transcript discusses the lack of a short cover rally as short interest has decreased, which is a key difference from the 2020 meme stock situation.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The script briefly mentions high inflation in the context of the current economic environment, which is a factor that can influence investment decisions and market behavior.

💡NASDAQ

NASDAQ is a stock exchange platform known for listing technology and innovation-focused companies. It is often used as a benchmark for the performance of the technology sector. In the transcript, the mention of NASDAQ breaking new highs refers to the overall performance of the technology-heavy stock market index.

💡Reddit Boards

Reddit is a social media platform composed of numerous online communities known as 'boards' or 'subreddits'. These boards are central to the discussion and promotion of meme stocks, where users share investment ideas and drive collective action. The script references the influence of Reddit boards in the context of the meme stock phenomenon.

💡GameStop

GameStop is a company that was at the center of the 2020 meme stock craze due to a short squeeze orchestrated by retail investors, primarily through the Reddit community r/wallstreetbets. The company's stock price skyrocketed as a result. In the transcript, GameStop is used as an example of a meme stock and its current CEO's actions are discussed in relation to market dynamics.

💡Bed Bath & Beyond

Bed Bath & Beyond is a retail company that was mentioned in the context of the GameStop CEO, Ryan Cohen, taking a position in the company. The mention of this company highlights how the actions of key figures in the business world can influence stock prices and investor sentiment, which is relevant to the discussion of meme stocks.

💡AI Technology Boom

The AI technology boom refers to the rapid growth and development in the field of artificial intelligence, which is transforming various industries and creating new opportunities for investment. In the script, the speaker advises against focusing solely on meme stocks and instead highlights the potential for significant returns in companies involved in the AI technology boom.

Highlights

The return of the meme stock craze is surprising to some market analysts.

The current market is described as quiet and going through a transitional period.

The discussion suggests that the recent activity is not a return to the past meme stock dynamics but a different market situation.

High inflation and NASDAQ reaching new highs are mentioned as current economic indicators.

The pandemic and stimulus checks influenced the original meme stock frenzy in 2020 and 2021.

There is a significant difference in short interest between the 2020 situation and the current market.

The short interest for the stock in question has decreased, reducing the potential for a short-covering rally.

The CEO of GameStop, Ryan Cohen, took a position at Bed Bath & Beyond, which was met with cautionary advice.

The speaker's experience with Reddit boards and the challenges of responding to the community are shared.

The company in question is expected to perform differently than the previous year, with a lower profit.

The current economy is characterized by people working and a transitional period in the market.

The speaker suggests caution and considers shorting the stock via options, reflecting on a past attempt.

Many opportunities exist outside of the meme stock phenomenon for investors.

The advice given is to avoid buying cheap stocks pushed by message boards and instead focus on a more disciplined investment approach.

There is a current boom in generative A.I. technology with many companies exceeding expectations.

The speaker encourages viewers, especially the younger crowd, to effectively deploy their capital in a more disciplined manner.

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