It seems like the stock market’s biggest winners lately have been its riskiest. From SPACs to stocks ripping on a single Elon tweet, it's easy to write off retail investing as some sort of meme.
But what if this time is different? What if these "pajama traders" actually help companies create value they otherwise couldn't?
On Reddit yesterday, WallStreetBets users were celebrating the gains, posting screenshots of big wins from bullish options bets. One user posted that they “run the market.”
Or take the pajama-trader favorite GameStop (GME), whose stock doubled in two days this week. Previously skeptical investors were forced to flip their position, driving the stock even higher (known as a "short squeeze").
It's easy to scoff at these stories, calling them manias. But with second-order thinking, is there more to this story?
Let's play out one possible scenario. Suppose GameStop's rally reverses but the retail "newbies" (many of them avid gamers) stick around and support the stock's price. Then what if the GameStop leverages its inflated perception to raise money? Just like that, the company finally has extra capital to invest in its online gaming store.
Couldn't this totally change the game (pun intended)? Rabid fan base -> high valuation -> ability to raise extra capital cheaply -> ability to make investments = the Amazon of Gaming?
We're not saying we're bullish on GameStop. The stock price has declined from $30+ to less than $3 over the past 5 years, driven by a shift away from buying videogames in-store. This Amazon vision could be a stretch.
But with second-order thinking, you can paint the narrative of how so-called bubbles -- from Tesla to GameStop -- could not only last for years, but have their rabid fan bases provide significant value.
Don't underestimate the power of a spirited group.
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