The GameStop Saga: A Classic Pump-n-Dump? Or Dream-Come-True?

The GameStop Saga: A Classic Pump-n-Dump? Or Dream-Come-True?

In the end, GameStop (GME) was your classic pump-n-dump. Maybe it wasn’t an intentional SCAM, but once Reddit traders found themselves making a lot of money, the temptation was just too great to sell and reap the profits, thus the stock’s price came crashing down, even though people on r/WallStreetBets kept urging everyone to hold on.

There is a psychology behind this… if you end up getting big returns, fear sets in that you just might lose it all if the stock tumbles.

So, those who found themselves at the top had to sell in order to ensure profits. And thus the momentum for the stock to tumble.

One wonders how many people lost on this bet, because in reality it WAS a big bet (a gamble) because:

1. GameStop (the company) was in the process of selling a ton of their stores. They were on the verge of bankruptcy.

2. GameStop’s business model was becoming irrelevant in this day and age of easily downloading games via an internet connection, or simply just playing games totally online.

3. In the age of Coronavirus, it is more convenient to download and stream content and games while in lockdown or quarantine.

4. GameStop is a brick-n-mortar store, and we all know how retail stores have been struggling, and e-commerce and e-tail stores have been thriving.

In the end, if you day traded or swing traded GME, chances are you made out and took your profits. For those who bought near or at the top, only to see the stock tumble, I hope some newbie traders didn’t put their life savings into that bet. And if so, it would be a big lesson in how not to invest in a stock.

Just my .02 cents…

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Portfolio Manager & Musician

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