Understanding the Gamestop and Dogecoin Phenomenon | Podcast Episode #144

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, everchanging world of finance. Learn what it means to trade profitably and consistently managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market and we’re going to talk about GameStop, doggy coin. We’re going to talk about some of these other high flying stocks like AMC and BlackBerry and Nokia because that’s what’s been in the news lately and it can be really good to take what’s actually going on in the market right now and apply it to a real time trading strategy.

0:51
And for the bourbon that I’m drinking today, it’s going to be Buffalo Trace. All of you guys have probably had really good one. I think it’s one of the better distilleries out there. But any case, Buffalo Trace, it’s a Kentucky Strait Bourbon Whiskey, 45% alcohol, 90 proof. It’s probably been like a couple of years since I last had Buffalo Trace, and for a while there I I would never drink things neat. I would always have at least the ice cube in it. But I’ve become a lot more accustomed to drinking bourbon neat and that once you get used to it and and you, you start to appreciate so much more like the flavors that come out in it. So I’m drinking this neat and it’s a solid drink. I would probably give it like an 8 one.

1:27
I really think Buffalo Trace is good and I really don’t remember it being that good a couple of years ago. So I’ve been meaning to dive into this GameStop, Wall Street bets, doggy coin topic here with the podcast. Most of the time I’m trying to keep these Evergreen and when I say Evergreen, I want it to be something that 10 years down the road you can listen to this podcast and say, you know what, this is still relevant to today.

1:51
And so I try not to get so much into the day-to-day issues that we encounter in the stock market. I definitely stay away from the charts with this podcast because it’s a podcast you can’t see anything, you can only hear. So, I mean, there’s no point in referencing charts, but I wanted to attack this one in a unique way and this guy here sends me an e-mail, very timely e-mail.

2:10
And so I’m going to use it today to discuss the current events and just how it applies to trading in general. So he says hey Ryan and we’re going to call him Biff. By the way, I just saw Back to the Future the other day and that name has been on my mind. I saw it and I said, hey, that’d be a good name for the podcast. So Biff writes, hey Ryan, I am a converted Robin Hood bro, and I am on TD Ameritrade now.

2:29
Good. I I think TD Ameritrade’s a lot better than Robin Hood. I really do. It’s a ton better, better software. They still have a phone app, they still have free Commission trading, just a lot better than Robin Hood, he says. I’m sure you will probably be doing this, but I’m hoping you will talk about the Robin Hood and GameStop fiasco.

2:44
But thanks to your e-mail, I have some material to work with, he says. I’m glad I came across your podcast because you helped me realize that I need to use stop losses and there are trades that have a good risk reward ratio. If this were a year ago, I might have jumped on the bandwagon with GameStop. I am a relatively new investor in terms of swing trading and I don’t fully understand what is going on right now in the market with Robin Hood and GameStop.

3:06
A lot of people don’t, but that hasn’t seemed to stop them from trading it. He goes on to finish this e-mail with. I’m hoping you can explain to those of us who don’t understand the ins and outs of the market as well as you do. Cheers Biff. OK, so there’s a lot of background here on the Wall Street bets and what you’re seeing with GameStop and AMC.

3:25
A lot of people that are playing it don’t really get what’s going on. They’re seeing the headlines on the news and everything else. Essentially, there’s a website called Reddit. Most of you guys have heard of that. There is a subreddit. And I believe that’s how they categorize these message boards as a subreddit called Wall Street Bets. And a lot of people talk stock, and you’ve just had a lot of members over the years that have joined Wall Street bets.

3:46
It’s free. It’s it’s not like a subscription service or anything like that. It’s just a message board. It’s kind of like Yahoo Finance was back in the 90s. Now Wall Street bets, it’s kind of like your Yahoo Finance message board. And a lot of people were loading up on GameStop and some other trades like BlackBerry and all that stuff.

4:04
Well, you had this company called Citron, and Citron came out with this very bearish forecast on GameStop. Well, it took GameStop down a little bit, and that’s what kind of emboldened these Wall Street bets investors to start buying the dip and pumping that stock up.

4:21
And they continued. It was like a snowball effect. They continued to get more and more people behind their cause and more and more people that were buying into it. And one thing led to another. It’s like it kept going higher. More people would notice it. They were afraid that they were missing out. They jump into it then. And then as it kept going higher, even more people would notice it and jump in.

4:37
So then you get the stock that’s going like from like 4 or $5 back in September and it’s like hitting $480 here in the past week. I mean it’s way beyond any kind of all time highs. I think the all time highs prior to this run up was like in the 60s. Now GameStop has been around forever. It’s been like around since the 90s for the most part.

4:55
But this has just gone way beyond it. And you know, the 90s, it was a big deal. I mean, it was a very profitable company at one time and it’s still around and it’s still making some money. But a lot of people didn’t think it was going to be around for much longer, that it would go eventually like the way of Blockbuster because a lot of people are downloading video games now rather than buying them at the stores.

5:12
So then when people started seeing the success in GameStop, but then they were like, oh, let’s pump up AMC because that’s another company that’s going out of business. So they all start driving AMC up. And then, well, let’s not stop at AMC, let’s go into BlackBerry. And they drove BlackBerry up. And then Nokia. And I think they’re going to struggle a little bit with Nokia because that’s a $27 billion company.

5:30
So that’s a little bit harder one to pump up. I mean, they have been able to pump it up, but it just doesn’t show that same juju that AMC, BlackBerry and GameStop is snowing. Now they’re drifting into the cryptocurrencies and they’re buying up doggy coin. And I got to be honest, for a long time I kept seeing that and I didn’t know if it was doggy coin or doggy coin.

5:48
But it’s doggy coin from what I understand. I Googled it and I don’t listen to CNBC. I just don’t care about listening to CNBC. I don’t, they don’t add any value to my trading experience. They don’t add anything that’s going to help me to profit off of it. So I don’t listen to them. So while the world’s talking about doggy coin, I don’t get to hear about it because I don’t listen to the financial news.

6:09
But what we’re seeing with like GameStop and what we’re seeing with AMC, Nokia, BlackBerry, Doggy Coin, that’s not anything new. We saw the same thing with Hertz. We saw it with Kodak. You saw it with Uone, FMCI. These are all companies that saw massive spikes to the upside and then massive crashes.

6:26
And the one thing that all of these stocks will have in common at the end of the day is it’ll create a legion of bag holders, people who got in, they probably had profits at some point, but they didn’t sell. It came back down and they hoped that it would come back up, never did. And they lose everything. You’ve already had that with the UO and E, the Kodak, the Hertz, the FMCI.

6:47
You haven’t seen any of that yet with GameStop, AMC, BB and Nokia or doggy coin. The reason being is just because the story hasn’t been completely played out on those. You’re seeing a little bit of it with GameStop right now. I mean, you’re seeing some massive swings in it, right? So there squeezing these stocks, they’re going after these stocks that are on the verge of bankruptcy, but they’re also heavily shorted.

7:06
Now, when I talk about being heavily shorted, what does that mean? It means there’s people on the other side of the trade where they borrow the shares and they sell them immediately on the open market, hoping that it will come back down even further so they can buy them back later and return those borrowed shares.

7:22
Be like if I borrowed your watch, right. Let’s say your watch is worth $100. I said, hey, can I borrow your watch? I’m like, yeah, sure, man. So you give it to me and I immediately, without you even knowing, I go out there and I sell that watch to somebody for $100. Now I just made $100 off of your watch, but I still owe you a watch, right?

7:43
Well, what I’m hoping for is that the value of that watch will drop down to $50.00 and I can find it somewhere for $50. Maybe I find it on eBay, maybe I find it on Amazon, I don’t know. But I find it for $50.00 and I buy it. And then I come back to you and I say, hey, here’s here’s your watch back. So you got your watch.

7:59
The guy that I sold your original watch to got his watch back and I pocketed $50.00 because I sold it to him, bought it back for $50. And then I kept the difference between the 50 and the 100, right. So if I would have bought it back for $40, then I would have made $60.00. That’s essentially what they’re trying to do. They’re borrowing your shares, they’re selling them on the open market, hoping that they drop further so that you can buy them back at a lower price.

8:18
Well, the problem is, is that they shot this thing up to ridiculous highs, like $480 a share at one point. And so these people that might have been shorting it at like 40 or $50, almost down 1000%, like they have to take those shares that they shorted at like $40 and borrowed from somebody and they have to return those shares at some point because they don’t have them right now.

8:37
And so the only way they can get those shares back is by buying them at $380.00 a share. So they’re taking a massive loss. So you can see where that kind of a move could destroy a hedge fund, especially if they’re like leveraged on these things. And there’s 150% of the shares outstanding on GME were basically being shorted more than what actually existed.

8:56
So it creates this huge dramatic ripple effect higher. Yeah, they shouldn’t be allowed to short more than what’s in existence, but they are. They’re basically borrowing and borrowing and borrowing thinking that there’s no way that they can lose on this because they think it’s ultimately going the way of Blockbuster. So they got caught with their pants down in a very, very big way.

9:13
And so when these hedge funds start capitulating, well, then there’s there’s other factors involved. You’re talking about not like Robin Hood, bro, like losing $1000 or a few $100. You’re talking about billions of dollars. At one point, the shorts were down like $91 billion off of this move. I mean, massive amounts of money.

9:29
And people are going to get mad at that. And there are people that have power. These are people who are well connected with the people in DC That’s why it got DC’s attention. They were probably calling their buddies on Capitol Hill and then you’re getting pressure applied to Robin Hood. Look, here’s the thing about free commissions, OK?

9:45
And it goes back to the whole concept of Facebook, where you have a Facebook account, it’s free. And the old saying goes, if you’re getting something for free, you’re not the customer, you’re the product. And it’s the same thing with Robin Hood. You’re not the customer at Robin Hood. You’re the product. And what these brokerages are doing when you put an order in that order is being sent off to a different company, to these hedge funds, these high frequency traders to these institutions that are front running your trades, buying it milliseconds ahead of yours and then selling it to you at a higher price if you’re putting in a market order for instance.

10:17
And so they’re making fractions of penny, but they’re doing this stuff millions and millions and millions of times a day and that’s where they’re making their money. They’re paying the brokerage for this information so that they can front run your orders. And let’s say it’s not just you that’s buying the stock, but there’s like 1000 other people that are doing it well. They can front run a whole thousand orders at once, make a make a few bucks off of it and just keep repeating that time and time again over and over.

10:38
It’s almost like the movie office space where you’re rounding fractional cents higher and keeping that money for yourself, but they’re doing it legally. So when these high frequency traders in these hedge funds, when they start blowing up because these brokerages have the product, which would be you and me and other retail investors and traders, they’re starting to blow up these hedge funds.

10:57
So the product’s basically taking out the customer, right. So what these brokerages are going to do, they’re going to start suspending trading because it’s hurting their business, because their business is ultimately the money that they’re getting from these guys, from these institutions, not from you. They’re giving you free trading. I would almost say that it’s better to be in the position where you’re the customer and you’re paying for a Commission on the trade.

11:17
Even if it’s a dollar, at least you’ll be a strong source of revenue for these brokerages. But when you’re the product and something goes wrong with their customer, which is the the institutions, the high frequency traders and the hedge funds, they’re not going to fix that. They’re going to fix the product. They’re going to make the product more appealing for these guys.

11:33
I mean, in essence, like what we’re seeing on Clay right now is the same thing that we saw play out back in 2008 with the subprime loans. These big institutions got caught with their pants down, these hedge funds got caught. They were bundling up these subprime loans and eventually the chickens came home to roost on them. It’s like they can’t get enough of leverage.

11:50
They have to constantly be leveraging themselves and putting the whole financial system at stake. And the fact that a bunch of people using a phone app that’s probably never traded, the majority of them have never traded before and that they’re putting this kind of pressure on them, it’s absolutely irresponsible of those institutions and of those hedge funds to be in that kind of a situation.

12:09
It’s like they never, ever learn. Instead of what happens, they over leverage themselves and they get that freaking veil out every time because they know that they’ll be protected. So the big question that I get from a lot of people is, should I join in? Should I get into this madness? No, you shouldn’t. I mean, here’s the thing too, is that if you follow me on swingtradingthestockmarket.com, which is where you get all of my watch lists each and every week, multiple times each week, and then you also get daily setups each and every day.

12:34
You’re gonna get updates each week on all the faying stocks, Facebook, Apple, Amazon, Netflix, Google, Microsoft and Tesla. And you’re gonna get multiple updates on the overall stock market, including the SP500, the NASDAQ, and the Russell. With that, I’m always preaching risk and reward and that’s that swingtradingthestockmarket.com.

12:51
So check that out. It’s my patron account. Now what you’ll find from that is that I’m always preaching risk and reward. It’s all about risk and reward. I don’t put something on my watch list that I don’t feel like can be managed from a risk reward standpoint. Obviously GameStop has been bullish over the last couple of weeks, really for the last couple of months, but I’m not including that on there.

13:09
Why? Because you can’t manage the risk. I have not made a single dime off of any of those plays and I’m okay with it because I’m trying to stay in the stock market long term. Yes, I can make a a dime here and a dime there off of it. But ultimately does that not lead down to a path of becoming more and more undisciplined in my trade?

13:25
Because if I succeed at it at first, what am I going to do? I’m going to try and keep doing it again and again and again and again and then eventually the only time I’m going to stop is when it blows up in my face. I want to be making trades that allow me to continue successfully trading longterm.

13:40
I want to be partaking in trades are that are able to profit for me today, tomorrow, and then in the years ahead. I don’t want to be taking these flash in the pans because everybody else is getting into it. Because when it becomes what seems to be the safest and the most predictable is the very time where that thing will fall completely apart on itself.

13:57
This is how bubbles are made. When everybody gets caught up in the FOMO and they can’t handle it anymore, they go after these things. And this is the same thing that we saw back in the late 90s. Late 90s people were buying these worthless dot coms that were still being run out of their mama’s basement.

14:13
They had no source of revenue, no customers. It was literally something that you would see out of Wolf of Wall Street. And yet people were buying options on them. They were putting everything that they had into it. And So what is going on now? Everybody’s putting their money into doggie coin. Most people don’t even know what a cryptocurrency is, much less what a heck a doggie coin is.

14:29
I never even heard of a doggie coin until just recently. And it’s trading at like fractions of penny. And why are people getting obsessed with it? Because they think there’s something there. Because that’s what they’re hearing from everybody else. And they’re seeing Bitcoin trading at thirty $40,000 a coin. And they’re thinking, well, this thing’s trading at a couple of pennies.

14:45
And everybody’s saying, this is the next Bitcoin. That thing goes to $40,000 a share. I’ll be like a quadrillionaire or something like that. And they’re buying into these crazy fantasies that all they got to do is be buying into these piece of crap cryptos. And I know a lot of you guys don’t want to hear that. You don’t want to think, oh, Ryan’s dogging on doggy coin.

15:04
Guys, listen to what you’re even saying. You’re talking about pouring your hard earned capital into something called doggy coin. Doggy coin. And a couple months ago you didn’t even know this thing existed. And yet you have all the confidence in the world that this is the next big thing. That’s what I’m saying. Maybe it goes, maybe it goes up to $1000 a coin, right?

15:21
I mean, everything I know in life, I will question at that point. But nonetheless, you can’t manage the risk on this stuff, guys, you really can’t. This thing goes up to 8 cents a share. It comes back down to two cents a share. I mean that’s like a 75% swing, guys. I mean, do we realize how crazy that sounds? And to think that you can manage the risk if you’re wrong, you lose it all.

15:40
That’s how it’s going to go. And honestly, it wouldn’t even surprise me if doggy coins a trap. I mean, what better way to wipe out a legion of traders than to make them think that this is the next big thing and then have Wall Street put it into all of the buying that’s going on right now through the Wall Street bets game. I’m not saying that that’s what’s going to be the case.

15:55
But if I was trying to figure out how to put a stop to all this madness, I would be trying to pump this thing up as much as I can and then bring the full force of these hedge funds and these big institutions and try to just crash that thing to make them all wiped out. Ultimately, this behavior that you’re seeing in stocks, this is how bubbles end. This is how they burst.

16:11
It’s how the NASDAQ bubble burst. It’s how the Tulip bubble burst back in the 1600s. When the market reaches that level of the greatest pain to the most amount of people, that’s usually when it’s a bad time. Now overall in the stock market, I’m not saying that we’re we’re we’re done here that that tomorrow the markets crashing and the it’s going to be crashing and crashing and crashing and we’re going to see that 87% pull back like we did in 2000 with the NASDAQ.

16:33
I’m not saying that at all. This thing might go for another year, maybe it goes for two years. But we’re starting to reach that point where the greatest amount of panic can be had against the greatest amount of people. And you want to be careful. You want to be careful. You want to know where that line in the sand is, whether you’re in doggy, coin, GameStop or Apple. You want to know whether it’s small cap or large cap.

16:51
Where is the line in the sand? Where are you going to get out at if this stock starts to turn against you? I have to do it with every one of my trades and you should be doing that too. Look, if you enjoyed this episode, please do me the privilege of leaving a review on Apple Podcast app. That’s the best way to help me out as I continue to turn out these these really good episodes, highlighting the pitfalls and the opportunities in the stock market as a whole as we all try to become better traders.

17:16
I look forward to doing this podcast twice each week and it’s the highlight of my week so make sure to leave a 5 star review if you can. That would mean the world to me. And if you have any questions or would like to send me an e-mail to put on this podcast, make sure to send me one at ryan@shareplanner.com and I’ll try to put it on there. Thank you guys.

17:32
God bless. Thanks for listening to my podcast Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the stock market each day with traders from around the world. With your membership, you will get a seven day trial and access to my trading room including alerts via text, e-mail and WhatsApp.

17:51
So go ahead, sign up by going to shareplanner.com/trading Block that’s www.shareplanner.com/trading-block and follow me on SharePlanner’s, Twitter, Instagram and Facebook where I provide unique market and trading information every day. If you have any questions, please feel free to e-mail me at ryan@shareplanner.com.

18:11
All the best to you and I look forward to trading with you soon.