Gamestop and what it says about investing today

By David Jackson, MBA, CFP^®, C(K)P^™, Managing Partner – Investments, Southern Springs Capital Group

“He sees them talking with a big smile, but they haven't got a clue.

Yeah, they're living the good life, can't see what he is going through.
They're driving fast cars, but they don't know where they're going.
In the fast lane, living life without knowing.
And he says,
I wish that I could be like the cool kids,
'Cause all the cool kids, they seem to fit in.
I wish that I could be like the cool kids,
Like the cool kids”

~ Cool Kids, By Echosmith 2014

In the investment world, I notice a lot of interesting paradoxes. One of them is that people prefer investment results that are better than everyone else’s, but at the same time they have an overwhelming desire to do what everyone else is doing. You can’t do better than everyone else by doing what everyone else is doing. It’s not just the Reddit chatroom generation, I see this across all demographic groups.

So, what does the recent action in a stock like Gamestop tell us?

I think it reflects a couple of changes in the investing world recently. First, during the pandemic, a lot of sports and sports wagering was non-existent, at least in the early part of last year. Most casinos were closed, and many still remain closed today. So, for a lot of bored gamblers, the stock market became a substitute for their favorite pastime. In fact, one of the chatrooms in the news was called “WallStreetBets.”

One thing sports bettors try to do is figure out what the “smart money” is doing. A lot of times this means that they end up placing bets after the betting odds have already moved substantially. The “smart money” gets their bets in before the general public, and often gets better odds than the people who pile in later. This is not much different from a few “smart people” buying a stock, then telling the rest of the world that they should be buying a stock, feeding its rise after they have already purchased it. Then the next investor spreads the word to the next investor, and so on. This usually does not turn out well for the last investors to get the word.

The second thing that GameStop situation reflects is that unfortunately, a lot of people in my profession have gone out of their way to make investing incredibly boring. Many advisors stress diversification (which is a good thing) so much that they leave no room for investing in individual securities.

I recently did a zoom meeting for a group of high school kids in Williamson County participating in a stock market contest. Those kids were excited as we talked through various stocks, and I shared my opinions on how to win those contests where the kids get a simulated pool of funds to invest in the stock market for a limited period of time. I stressed that the way you win a contest with a short-term focus is not necessarily the way you would invest long-term.

Ultimately, following the crowd and seeking excitement is unlikely to be viable investment strategy for you or your family. The best advice I can offer someone interested in the ramifications of the GameStop situation is to remember that a stock reflects a business. Make sure you or your advisor think a company actually has good business prospects before you invest in it. Even if that’s not what the cool kids are doing.

For more information on Southern Springs Capital Group, visit www.southernspringscapital.com. Our offices are located at 2555 Meridian Boulevard in Franklin. We can be reached at 615-905-4819.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of David Jackson and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. This is not a recommendation to purchase or sell the stocks of GameStop.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Southern Springs Capital Group is not a registered broker/dealer, and is independent of Raymond James Financial Services.