Roaring Kitty Returns to the Meme Stock Crowd

Editors’ Note: MarketMinder doesn’t make individual security recommendations. The below merely represent a broader theme we wish to highlight.

Why do you own the stocks you own?

Originally, this was going to be an article about a certain meme stock ringleader’s return to the spotlight and the wild ride in a certain company that followed. Maybe you have heard of it—it rhymes with Fame Plop. I was going to talk about the ringleader’s hotly anticipated livestream Friday morning, in which he discussed what appears to be a position in call options worth a few hundred million bucks, and highlight the timeless reminder he gave his audience: “My aggressive style of investing is almost certainly not for y’all. You know that because I’ve said it all this time.”^[i]

Which, duh, for retail investors, going whole-hog in call options—probably with a lot of leverage—on a single, volatile value stock likely isn’t wise. Better to diversify. Don’t view investing as a get-rich-quick mechanism. Harness the market’s long-term compound growth to reach your goals. And then close with a paragraph reminding folks of the difference between investing and speculating.

But there was a nagging, unshakable question: Are we all really sure small-time individual investors are the actual audience here? The financial world seems to have assumed the answer is yes. I am not so sure. The Internet usually moves on from fads at warp speed.

In 2021, when meme stocks were all the rage, retail investors would flock to forums like the Wall Street Bets subreddit and post screenshots of their holdings. It was lockdown, people were bored, no one could spend their “stimulus” checks, so folks flocked to stock trading apps and let loose with stocks, options and cryptocurrencies.

Some of these folks had a lot of fun with penny stocks, trying to reap big wins from tiny price movement. There was some alleged pump-and-dumping. There was some follow-the-leader as prominent users of the forum inspired others to mimic their trades. And there was a concerted effort to force a short squeeze on hedge funds who bet against them. Good guys. Bad guys. White hats and black. There was Congressional testimony. We wrote some columns. Naturally, Hollywood made a movie.

The stock most associated with this was brick-and-mortar videogame retailer GameStop. The frenzy started with an online trader whose aliases included “Roaring Kitty” and something we can’t print on a family-friendly website, referencing his preference for distressed companies he believed had big turnaround potential. GameStop, he argued, was a turnaround success in waiting. People piled in, and it boomed and busted, but the turnaround crawled forward.

Meanwhile, Mr. Kitty went dark on social media for three years, the meme stock frenzy died down, and the world moved on. Other stock influencers got hit with stock manipulation charges. 2022’s bear market dampened a lot of retail investor enthusiasm. The so-called Magnificent Seven Tech and Tech-like stocks took over the headlines.

So when Roaring Kitty teased a social media return last month, we all wondered what sort of world he would find. Was the zeitgeist still there? It seemed to be when he revealed a big position and GameStop’s price and trading volume soared in tandem.

Except, when I popped into Wall Street Bets after Friday’s livestream, no one was talking about it? The subreddit is still active, and people still post screenshots of their positions. But these days they are about established businesses—well-known Tech firms, mostly. Not penny stocks alleged to hold deeply buried value.

If Reddit has moved on, then who, exactly, is mimicking Roaring Kitty’s trades? My hunch: It is predominantly professionals, like hedge funds making short-term momentum trades. The frenzy reeks of a self-fulfilling prophesy. They piled in thinking retail investors with slower trigger fingers would do the same, driving the stock up. Only the retail crowd didn’t bite, and when the pros went to sell during the livestream, thinking individual investors would be eager to buy after hearing Roaring Kitty’s stock analysis, it seems they found there were no proverbial greater fools willing to pay a higher price, and the stock tanked.

If that is the case, well, retail investors outsmarted the pros once again. Because in my view, whatever one thinks of GameStop’s turnaround potential, there was no fundamental case to hop on the bandwagon. This isn’t about security advice and return projections—it is all about first principles.

Simply, markets are too efficient for this kind of follow-the-leader thing to work when the spotlight is this bright. They incorporate all widely known information instantaneously. The instant the world knew Roaring Kitty was back in, it was priced. The turnaround story? Well-known and therefore priced. Disagreement with that thesis was also priced, in the form of well-documented short positions.

In my view, this is a case where no one could look at this potential trade and think they know something others don’t (not in the illegal sense, but in the I have a clever thesis that no one else has, and it gives me an edge sense). All the reasons for and against have been hashed and rehashed to death, so they are there, reflected in the stock price. That left speculation, traders and algorithms as the primary drivers in the short term. You can guess at all that and maybe get it right, but I don’t think it is possible to assign probabilities. Too erratic.

So, going back to the opening question: If you think you want to buy a stock, why? If you want to move money into a given country or sector, why? If you think it is time to sell, why?

Gut checks like this are important because they help you identify whether you are looking backward and trading with the crowd or taking a less-popular and forward-looking view. Or, more simply, whether your thesis is already priced in. For instance, there was a report Friday showing investors are leaving UK stocks ahead of July’s election. Some commentators argued this is because investors see months of polls suggesting a high probability of a Labour landslide and anticipate five years of high taxes, stagnant GDP and waning economic competitiveness.

But first principles tell us this thesis is so widely known, it must be baked into UK stocks by now, at least to a very large degree. Especially if people are trading on it now, not waiting for the election results! This clears the way for UK stocks to do something different than everyone expects. What that something different is will depend on the gap between expectations, which seem rock-bottom at the moment, and how reality shapes up. This gap is what markets will price over time.

Now, I am not saying you should be a rote contrarian and do the opposite of what everyone does. Fisher Investments founder and Executive Chairman Ken Fisher and I wrote a whole book about this a decade ago. Rather, it means that whatever buy, sell and hold decisions you make, if your reasoning matches what everyone else is saying, you should consider what everyone else might be ignoring. Acknowledge what is probably already priced in, then ask what might not be.

Maybe you find people aren’t bullish enough because they are overlooking potential in a less-watched business unit, industry or country. Maybe you find they are overlooking a risk. Or maybe you find they are probably right and this is one of those times where the crowd gets an A. That happens!

But thinking critically is the key regardless. Keep an eye on what people say, then remember stocks are doing the same thing. Then, figure out what people aren’t talking about and what opportunities might lurk there.