In a special edition of Yahoo Finance’s Opening Bid, Yahoo Finance Executive Editor Editor Brian Sozzi, Steve Sosnick of Interactive Brokers, and Jay Woods of Freedom Capital Markets explore the meme stock frenzy. The discuss how investors should go about investing in the polarizing company that is GameStop (GME) (and if they should at all!) and break down the approach to trading in meme stocks. This is your ultimate 24-minute guide to building and not losing wealth in some of the most volatile, confusing stocks in the entire market.

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Video Transcript

Hello.

Hello, this is a special taping of uh the opening bid podcast where we will explore how investors should go about investing in that polarizing company that, you know, as gamestop and help break down the approach to trading in meme stocks more broadly.

This is your ultimate 24 minute guide to building and not losing a hell of a lot of wealth in some of the most volatile confusing stocks in the entire stock market.

Here with me now is freedom, capital's freedom Capital Markets, Chief Global strategist, Jay Woods, and interactive brokers, chief strategist Steve Sosnick.

Uh I'm sure it's been wild times for you both Steve.

I wanna start with you.

What is the activity been like for the game?

Stop ticker on interactive brokers uh amidst this latest meme stock insanity.

Hi, Brian, thanks so much for having me.

Gamestop has been one of the most active stocks in our platform pretty much since the, since the return of roaring kitty, you know, it it it as of uh five day moving average that I look at um you know, it was number three as of yesterday.

Um which and that was up from as of, you know, fifth place on Friday.

So that throw in realizing that it's a five day moving average.

It was probably um the most active stock on our platform, if not, if not just this close second to NVIDIA yesterday.

Um But the interesting thing is it's been in the top 10 pretty consistently since that whole time, since that whole run up.

And actually during last much of last week, it was in the top five.

So our customers have remained active in the name.

They tend to be very much drawn to um highly volatile, high volume situations and, and gamestop for, for all its pluses and minuses certainly fits that.

Bill Jay.

I love that.

You're, you're coming to us from the iconic New York Stock Exchange.

What is, what's the chatter on days where, you know, Gamestop has, has essentially takes over the market?

Psychology.

Well, what do you hear down on the floor?

Yeah.

Um, it's very different this time than the last time.

This is more isolated to gamestop than it is a whole meme craze.

Uh a few weeks back when he, he first posted uh that uh that meme leaning forward in the chair that got a lot of stocks, especially stocks with short interest to, to spike and it was the AM CS of the world.

And uh but it wasn't anything like we saw a few years back now this time, it's very different because the chatter is about the dollars involved.

Uh What we're looking at one, the volume is down dramatically from one the meme craze four years ago, three years ago, uh to what we've seen over this period, although it is one of the most active stocks on the floor.

Um But there isn't this, you know, unbridled, we're getting somebody th this, this is I have a position and I want to take this to a certain level by a certain time because there are options involved.

There, there isn't a movement behind it.

And then Keith Gill behind the original movement, this is a lot of money invested in the stock.

So where there are a lot of conspiracy theories going on when we talk about this right now, how can he afford it?

Why would he dare come back um with this kind of size?

And then he, he's been, it's just been memes.

He hasn't come out and said anything.

So we see a screenshot of that portfolio.

We see the amount of the millions of dollars invested.

This isn't somebody that did well the first time and is now coming back for more.

There, there seems to be more to it than that.

So there are a lot of conspiracy theories being thrown around.

Um But the movement it's not there like it was the first time I'll put this question to both of you, Steve, I'll, I'll start with you because look, I mean, you guys look fabulously young, you know, as do I, but the reality is you both have been doing this for a, for a hot minute.

I mean, you've seen a lot of different market cycles and Steve in your view is someone with this influence over this particular stock and we'll talk about meme stocks more broadly in a second.

Is this market a new form of market manipulation?

Um, a new form, absolutely not.

I mean, it's actually in many ways analogous to, let's say an activist investor, you know, taking a position in a big name stock that, that they want some challenge to that they see is undervalued and c and by some, you know, aspect, you know, of just knowing that the market is going to follow him and without picking on anybody, this is, you know, that's kind of how Carl Icahn made his living.

It, it, it's analogous, I wrote yesterday to Nelson Peltz, um what he did in Disney, but there's one major difference, they're doing it in stocks that they actually really believe are undervalued now roaring kitty, whomever he may be at this point.

And I agree with Jay that, that it's not clear that it is actually Keith Gill.

Um but it, it's, it's, it's pretty obvious that gamestop is not fundamentally undervalued.

Um You could argue that some of some of the activist investors targets are, you know, Dis Nelson Peltz lost the Disney battle but ended up making a lot of money.

Uh because, because it raised awareness in it.

But in this case, I do think that that there's just something so much more cynical about this and it was what Jay alluded to it.

You know, I the original meme craze to me was very much us versus them.

It was the US taking on the those who dared to short our favorite nostalgic names.

It was very much millennial driven.

It was think about the original names.

It was, it included things like build a bear.

Um And I build a bear who doesn't love, build a bear.

You go in there, you get a stuffed bear.

I mean that place is great.

So how dare people short it, how dare you short bets against the, against the stocks that, that these, that the millennials were dragged to, you know, in the mall by their parents or, or, you know, or their parents consumed by their blackberries while they were playing.

There you go.

And so, and so what happens is this is now, it's not clear who them is right now.

That's what makes it a bit.

That's, that, that alludes to Jay's point is, you know, there was a clear us versus them and, and if you're not sure who them is, well, them might be you because I do think they're using people as the sort of their source of liquidity, their source of profitability.

Well, Jay hot potato to you is, is Key Hill or whoever this account might be.

Is, is this the New Nelson Peltz for this investing generation?

Well, first of all that build a bear is a great analogy.

I'll one up you on that.

Remember Tootsie Roll?

You go back during that craze.

There was a two day stretch for Tootsie Roll.

The worst candy in the world, by the way, uh, spike it doubled in his day and came back down because he likes tie rolls.

I can see he's smiling.

I think he's a Tootsie roll guy.

I'm, I'm actually agreeing with you.

I'm not a big Tootsie roll fan.

It's not the worst time.

Well, he needs a stock symbol.

Tr I been on the, the New York Stock Exchange for over 100 years and all of a sudden the stock that did nothing for years got mem.

Uh So yes, that was part of the craze and two year point with activist investors.

I'll never forget where I was the day we hit the fourth circuit breaker during COVID when he was coming and Mr Ackman was on C NBC.

Sorry for competing network.

Uh We gonna block that out anyway, Steve, we're going to block it out.

Yeah.

Yeah, he was on and then put Yahoo fight it.

Uh He went, he basically caused a panic.

He yelled fire in a crowded movie theater and the market went limit down.

We had a 15 minute pause as we did four times during that time and what was he doing during that time he was buying stock.

He wasn't dumping his stock.

They saw that he bought stock.

Um, so there are different ways to use your influence to get stocks to do things.

We had Dan Dorfman in the nineties and, uh, you know, those were crazy times when he was talking about his stock.

You have influencers who, whose job is to go on TV, and talk about stocks and they have a following and you'll see people move them in the case of roaring kitty Keith Gill.

Listen, he's got a strong loyal fan base that want to make money with him.

Kudos to him for doing that.

He's not registered.

So I don't think he's doing anything against the law, but you have to ask yourself is, you know, this is manipulative but is there any legal precedent that he is now if he's doing this, uh breaking right now?

And I don't know, it's a very gray area and it's one that I think this will change the way we look at things going forward.

Well, I can't ask, I don't think I can ask Steve if I may, I believe he was registered with Mass Neutral and they had to pay a hu like a $4 million fine for his stuff before.

So that's another reason, uh you know, and there's another name that I've heard thrown out there, which I, I won't mention because I don't feel like having a libel suit.

Uh, but, you know, it, it's a person who is an insider at the company and, you know, that name was po posited to me yesterday.

And I'm like, you know, if that person is doing it, they would be in violation of so many sec regulations because because of their insider status.

So II I it's, it's, it's even more of a gray area than, than it appears because because of I, I don't know if Gil is still registered but he was once.

Well, Steve, I, I don't think I can ask you this one.

So I'll put, I'll put this one to to Jay for the good of the mar for the, for the good of the market and for the good of investors and everything that investing Briggs, should he be kicked off of a trade or whoever this is?

Um II, I don't think so.

I always say let them continue to trade.

I, I mean, the first time we came in to this, you know, how many new retail investors we got to the market as a result of this.

I think it was great.

Uh II, I was getting questions from teenage kids, college kids.

All right, you're here, you're investing.

Uh That was great and they stayed, I hope.

And then they learned, you know, people are learning what a loss is in this investment right now because if you bought the opening yet or you bought the opening two weeks ago, that was the peak.

Um So there are a lot of hard lessons for the retail investor who did chase this right now.

Um And that's what I like to do is I like to, you know, provide some financial literacy and use my experience.

Say, all right, you wanna learn the stock market?

What are your time frames?

What are we doing uh individually.

Should he be punished?

If it's this one person?

Listen, if there's a law that he broke, then of course he should be punished.

Uh I am in a very highly regulated industry.

We all are, um, I, you know, have, you know, knock on wood, had a stellar, you know, career over 32 years where, you know, the, the biggest, you know, scratch on my record is you forgot to log out and I only went to get off the floor to, you know, answer my daughter and my picking up at soccer and I forgot to log out and they're, you know, giving me a warning.

Uh, so I, I do look at this, uh under a lot of scrutiny as someone that was uh an official at the exchange for years and no longer, um, we, we monitor these things closely and I hope the sec I is doing their job and if there's something that was uh foul about this, that they do investigate it.

But, um, right now from an outsider looking in and yes, I consider myself an outsider here.

Um, someone pumped something online that they, they strongly believed in and, uh, they're, they're profiting off of it now.

Is it that person, um, did they do anything illegal?

These are the questions that are gonna be answered when they write the book about it?

Uh, 6 to 18 months from now.

All right.

Well, hang on, hang on there.

Gents.

Uh, it's time for a quick break.

Don't go anywhere, folks.

We're still rocking our usual 24 minute conversation.

So Steve, let me get back to you.

What do you think investors are learning from this latest bout of volatility in gamestop and then secondarily the meme stocks more broadly.

Um, I'd like to think they're learning important lessons about risk versus reward.

Um, you know, you know, people have asked me, oh, should I be telling people not to get into the involved in the situation?

And, and I really haven't.

I mean, you know, I recognize that people are always gonna be drawn to, to volume, they're always gonna be drawn to volatility.

But the, the key here is where there's high, where there's high levels of volatility.

There's the potential for high return.

There's also implies that there's a high risk of loss.

You have to understand your discipline, you have to understand your, you have to go into it with your eyes open.

Um, you know, it can turn out to be an expensive tuition payment.

Um if you learn that the lesson the wrong way.

So that's why I'm trying my best to get people to, to go in with their eyes open and understand the risk versus reward that, that accrues in a situation like that.

And that's really to me the, the, the the thing that people need to take away, you know, the other thing I guess to take away is do your own homework, Don't just chase somebody because again, you know, as Jay alluded to, you know, if you chase th if you chase those initial runs, you got clobbered on that first move.

Uh What was it three weeks ago by Friday, everybody who'd bought during Monday through Thursday was down for the week.

Anybody who went into that Friday long was down now it's since rallied back.

But again, anybody who bought particularly in the pre market yesterday or, or on the opening print yesterday, at least today as we're, this is looking at a loss.

So you do have to understand that the, you know, these things are moving against you and, and at some level, there's an old saying in poker, if you don't know who the sucker is at the table, it's probably you and, and so you really have to be careful who, what is the, besides who's giving you the advice.

You know, maybe it's, maybe it's me, maybe it's Jay, maybe it's, maybe it's you, Brian, maybe it's somebody random but what is their motivation for it?

My motivation right now, um, is I'm, I'm paid just to make sure that our customers stay customers and stay liquid.

Um, and so my feeling is I want to make sure that people are trading prudently, you know, that, that there is an opportunity for profit but that there's, there's the potential for loss.

But, you know, I get sucked.

You know, I, I, if I say even the most contrary, mild, mildly, contrary thing on social media, there's always someone popping up to, to flame and I'm sure you're, you're more than aware of that, Brian.

I am.

Yeah.

Yes.

Yes.

Actually, yes, Steve it.

I can only imagine the Congress were to get after repost this.

But my motivation, Jay, I'll hand it over to you.

My motivation has always been, it's been for the 20 years, 20 years.

I've been doing this, you know, as an analyst for 10 years.

It is.

I always look through the prism of the fundamentals.

So bear with me as I run through this and, and I've written very critically on Gamestop about a year and a half ago or maybe a year ago.

I wrote an open letter to Ryan who's now the CEO uh of gamestop calling him out for his absolutely dreadful, horrific horrendous job he has done uh first as his executive chairman and now ultimately as CEO.

So look at these prices.

So Ryan Cohen, uh also the largest individual individual investor inside of gamestop January 11th, 2021.

Uh, he joins the board.

Stock closes at 66 bucks.

September 22nd 2.

T 2023 takes over as CEO stock closes that day at $15.

Now, the stock actually on April 15th.

Shout out to my mom.

That's your birthday.

Uh, the stock closed at $10.42.

Some new lows there.

Uh, before all of this, uh, recent pick up, uh, in activity because of war and kitty.

Fundamentally, this business still sucks.

It operates about 5000 stores around the world.

Sure.

They have about 2900 of their leases for those 5000 stores coming up for renewal.

But still this is a legacy retailer doing absolutely dreadful.

But I look at the market cap, gents, uh, Gamestop market, clap cap $9.4 billion.

Macy's, they own real assets, real assets, real land, $5.1 billion market cap.

Are you kidding me with this game?

Stop, uh, market cap.

I look at Abercrombie and Fitch.

I just talked to the CEO last week, blew, blew away earnings by 20 something cents.

Their market market cap is $8.59 billion.

Lastly, Mattel, $6 billion market cap.

What do they do?

They own freaking Barbie and they're blowing it up.

I mean, Jay, the fundamentals do not support where the valuation is on this company.

Now, I get it.

It's being driven by sentiment.

But this is absurd.

Well, stop making so much sense.

And, uh you know, you're talking to a CMT, a technician who studies price patterns.

And what I saw 3.5 weeks ago was a breakout in this stock.

And I was kind of like how is this stock breaking out?

And then the meme came a few days later.

So price action was actually leading this move.

Um Now as far as targeting goes and how high this can go as long as it's above the 200 day moving average, uh which is, you know, under 20 then maybe something's turned around, but fundamentally, you are spot on.

Listen.

Uh I it doesn't make sense and the market tends not to make sense.

This is a craze, that's why we're talking about it.

Uh And it was one back then.

I think the fundamental story in the beginning of this, uh when Keith Gill went on, you know, his story took six months to pick up, you know, he wrote this theory about why he liked game stop and the short interest in it, I believe in the summertime, it wasn't until January it picked up.

And as a trader, um that thing took off and it got, it became the movement.

It was and, and full disclosure, I was on garden leave between jobs and I had time I traded it.

My, my couch is named gamestop.

My T V's named J Woods.

It was all momentum.

But this is the Steve's Point and this is the most important point.

I traded with stops in place all times.

And I remember and I'll go to a MC because I bought it at four and I sold half my position at six.

And my, my teenagers yelling at me like, what are you doing?

It's going to the moon.

He was totally hit on the craze and I sold a little more at eight.

This is risk management.

I look at him, I've been doing this for a long time.

These moves don't normally have when you can get a profit of 50% 100% within a day or two.

You take it and you say thank you.

And then I, I traded all the way up to 20 I sold, my last project was like 100 shares of an original Jay for the new investors.

Listening real quick.

What, how do you define a stop loss?

And then how do you define it on a, on a, on a stock like Gamestop?

Exactly.

So it's about risk management when I go into a trade, I think what's the worst I can lose?

Uh, I mean, obviously you buy stock, you want to go to the moon of, that's if you're thinking like that, then you're, you gotta check yourself at the door, but you want to have a, a gain, a reasonable gain in the stock and if you start to have that gain, what you wanna do is protect yourself on the downside.

So what you have is a stop loss.

So if the stock goes, uh, from, from game stop, it's trading at 27 as we tape this.

If it goes up to 30 I, you know what, I bought it at 27 just now.

If it gets back to 29 maybe the momentum will continue lower.

I will stop myself out once it ticks at that price and I'll have a sell order in the market, but I'm protecting those gains.

And so you wanna have a trailing stop on the way up, meaning as it goes higher, uh I am going to put my limits a little higher and if it ticks down, I'm out.

Uh that's just safety the way of doing it as a professional market maker for years.

Stops where got me into stocks as well.

I use by stops on breakouts.

So the stop is just a safety measure because you could turn your back for one second and how volatile and active this has been.

You may miss a huge move.

So you really have to be on top of these trades and stops are the best way to protect your capital or preserve the loss because when you get into a trade, four things can happen.

It's very simple, small loss, small gain.

These things happen every single day.

The goal is a big gain.

We, we all want that doesn't happen easy.

But if you get it, you want to take it in my career.

I've seen too many people blow up because they didn't avoid the one thing, the big loss and the stop order avoids the big loss.

You know, if the stock goes down 20% I'm out, 10%.

I'm out.

What is my pain threshold?

But I'm not gonna give up my whole nest egg or my savings or what I put into this trade because I didn't protect myself from any downside risk.

So Steve's point, the whole thing is about risk management.

So if you are trading this, you're following a crowd, you better have a game plan if it doesn't go against you because it's a game of musical chairs when that music stops you, you have no place to sit, you're gonna lose a lot of money and that's not what we want to see as investors in the market.

Steve is my way of crunching numbers on gamestop outdated.

Do I just need to stop looking at their leases their cash flow, their losses and just finally come to the realization this is never going to be a normal company again until it goes out of business.

No, it's not outdated but it's not, it's not what the market is focused on.

At this point.

You can never lose sight of the fundamentals.

OK?

Gamestop II, I ran some of them myself.

Yesterday, Gamestop um made five cents last year, which was the first time it made a profit since 2019.

Um in the prior three years, Gamestop's ca cash flow was a negative 930 million or so, which to be fair to them.

They sold $930 million worth of stock into the rally recently.

So that short up its balance sheet.

So you can argue that this, this whole movement did leave the company in a better place because it, it really was able to refill its cash coffers, presumably it's ref you know, retiring some debt.

So that's good.

So that might be able to help its profitability.

It's still not expected to make more than about 10 cents next year.

So, you know, do, do the valuation of, of that.

There's all the other stuff so you can't.

So that goes back to what Jay was saying in terms of the risk management and what we've, what we've been harping on.

You gotta, you have to have a sense of what this company might be worth if the company is worth.

If, if you think the company's worth $17 a share and you buy it for 22.

All right, that's ok. And you know, maybe I can get stopped out and I'll be all right.

If, if you buy the stock for $27 you think it's worth two.

Well, you really better have some tight stops on there because you, you're sort of dancing on the volcano to a certain extent.

So you do have to have sight of what the fundamentals are going back to what I said with the activist investors.

Believe me, Carl Icahn, Nelson Peltz.

All those guys, you know, all those guys, no, they have a number in their head for what this company is worth whenever they're doing it and, you know, they're taking on risks, you know, that that can be phenomenal.

They can't really stop them out.

But their stop out there is the fact that they have an understanding that the company is worth what it's worth.

Um In this case, it's really hard to say that it's worth anything significant.

And so you have to keep that in the back of your mind and that better reinforce your discipline in terms of what, how you do it, whether it stops.

I'm an option guy.

I use options a lot of times, but this is, this is how you, this is how you have to approach it.

So 30 seconds left, I'm giving you each 15 seconds.

Uh Jay over to you your final message to anyone that owns one share of gamestop right now.

Go, you're on the clock.

Good luck.

I, I think it's great to be involved in the market involved in a craze, but be careful, use your stops.

This thing is gonna move and it's gonna move quickly.

So you have to be on top of the trade, Steve over to you literally what I was gonna say, stay on top of it, but keep your, keep your risks very controlled.

Don't get ahead of yourself.

Bulls make money, bears, make money, pigs get slaughtered.

True friends of uh opening bid coming through uh for us uh with this special edition uh the ultimate guide to investing in gamestop and meme stocks.

That's it for the latest opening bid.

We'll catch you soon.