by If you’ve been following the news lately, it would have appeared that people were making money hand over fist by purchasing Gamestop stock and/or options. Now that the hype surrounding the stock has all but died, what’s the truth about Gamestop winners? Were there really more winners than losers?
Here’s what Wallstreetbets’ Redditor DeepF***ingValue (DFV’s) Gamestop options portfolio looked like on January 27, 2021, when Gamestop was worth over $300 a share.
His Gamestop portfolio (not including cash) was worth over $34 million. DFV was hailed as a genius. A hero. The David to Wall Street’s Goliath.
Furthermore, you may have seen other articles about other Gamestop winners:
- Anubhav Guha turned $500 into $203,411 in less than three weeks
- Hunter Kahn donated Nintendo Switches after cashing out almost $30,000 in GameStop stock
- 10 year old Jaydyn Carr turned $60 into just under $3,200
If you stopped there, you may have had FOMO (Fear of Missing Out). Was everyone getting rich but you?
Groups of Redditors were saying the stock would shoot to the moon! But many people were left holding the bag when they bought shares at $300+ a pop.
Here’s what DFV’s Gamestop options portfolio looked like on Feb 3, 2021, just a short week later:
His Gamestop portfolio, at its peak worth over $34 million, was worth a mere $8 million just a week later. That’s a paper loss of 76%!
This is your hero?
If you were fixated on only the big gains, you would have missed all of the other stories of people who suffered losses.
Barstool Sports founder Dave Portnoy lost about $700,000 on meme stocks like Gamestop.
In fact, I couldn’t find any other news stories from major outlets like Wall Street Journal (WSJ) of individuals with big losses.
The Gamestop saga is undoubtedly a cool story, one that is destined for syndication.
But if you focus only on the stories of the winners and not the losers, your vision of the stock market may become skewed.
A google search for “Gamestop winners” shows 106 million results.
A google search for “Gamestop losers” shows less than 18 million results.
Coincidence? Probably not.
My hypothesis is that the media loves to share stories of people and their wins, but not people and their losses.
On Instagram, do people post more pictures of when they’re Happy and at their Best, or when they’re Sad and at their Worst?
How many sports stories are published about Super Bowl winners vs. those who repeatedly lose?
Sure, there are a few people who have shared stories of their losses on Reddit’s Bag Holders Club.
But most people, including myself, would be embarrassed to talk about losses. Because losing money signifies poor judgement, and nobody wants to look stupid. No one wants to lose face.
So thinking that Gamestop stock was just a money making machine just because you only see success stories on the news is a complete fallacy.
The truth is, it is more or less a zero sum game. For every winner selling her stock at $400, there is a loser purchasing a stock at $400.
Sure there were people who bought out-of-the-money options and made it big, like Anubhav Guha in the WSJ article. But the probability of him making a lot of money and selling near the top was improbably low. Yes WSJ did a story on him because his story is remarkable. But for every story like him, there are 99 stories of people losing money on out-of-the-money options that don’t get told. He essentially played the lottery and won. That’s it. He’s not a genius investor. He got lucky.
Where are the published stories of people who bought Gamestop at or above its closing peak of $347 on 1/27/21? There are few, if any.
According to Yahoo Finance, Gamestop stock had a volume of 93.4 million. That means 93.4 million shares were bought and sold that day.
Many people made money that day by selling high. But where are the stories of people who bought at $300+ and are currently holding a stock valued at $60? I don’t anticipate Wall Street Journal to highlight stories of those folks.
So my advice is to take stories of quick success with a grain of salt.
Just because all you see in the media are stories of get rich quick success, doesn’t mean that your chances to get rich quick are high. Don’t fall for this availability heuristic, taking a mental shortcut for coming to a conclusion.
Realize that there are many untold stories from the thousands of losers. Don’t let FOMO cause you to make some terrible mistakes, like buying Gamestop at $300!
Putting it All Together
Wall Street Fat Cat advice remains the same. Stay away from meme stocks. Stay away from get rich quick schemes. If it’s too good to be true, it probably is.
When you read stories of Gamestop winners, do some research and understand that on the side of a winning trade (of meme stocks), there is a losing trade.
Stay the course by dollar cost averaging low cost index funds, a proven strategy that provides returns far exceeding the average investor (and people who try to time the market).
