Cult Trading 101: Welcome to the New World of Degenerate and Scum Traders
One of my concerns in life is that I will wake up one morning and realize I’m the guy who doesn’t know how to use the latest technology or has never even heard of the newest social app that everyone else is talking about.
It’s a fast-paced world and I truly do not want anyone to think of me as a degenerate, uninformed digital illiterate! Part of this of course is related to our business. The leadership team at BBT wants to make good decisions in terms of adopting new technology and abandoning old ones. For example, emails seem to be slowly going out of style, and we may very well need to communicate more with our BBT members through tweets, Instagram posts, and “Buss It” videos on TikTok. This is true though for any business. Adopt or perish.
We all remember Blockbuster and its inability to adapt to the new streaming world of movies. One by one, their locations went out of business. They had over 9,000 stores in 2004. Today they have only one. Another business that it seems should shut down is GameStop ($GME). It is losing money like never before. Who goes to a store to buy a game these days, when there are a plethora of game console websites out there and Amazon has a one-click “Buy Now” button? GME tried to restructure and become a social game hub, but the pandemic hit, and, based on their balance sheet, they seem to be doomed to go out of business soon. There is a place for a well-informed professional trader to short GME stock to possibly zero and profit from this degenerate business model. And professionals did short this stock heavily and Citron Research published a report on the short-selling opportunity. But apparently not. GME stock squeezed this week.
The /r/wallstreetbets, also known as WallStreetBets or WSB, is a subreddit community on Reddit where participants discuss stock and options trading. Their channel in Discord had over 25,000 onlookers on Friday. If a large number of traders like that all do the same thing, they can potentially make a huge move. On Friday, the channel was saying BUY and HOLD alongside emoji of rocket ships. GameStop’s stock hit $60, while in the Discord’s voice channel, hundreds participated in yelling, humming, and shouting HOLD. The stock continued to rise. It peaked at $73.09 midday before quickly falling to about $58. Discord members urged each other to “HOLD”. One WallStreetBets moderator was quoted as saying that this is the first time in years on WallStreetBets that “everybody was making money”. Of course, this is a false statement. Somebody is still holding GME at $70.
In a now apparently deleted tweet by one of their principal moderators, WSB refers to their members as scum and degenerates. No professional would ever take these types of channels or their memes seriously until they get squeezed. Here’s the wording of two of their tweets from January 19:
For far too long the world has dismissed us as degenerates, gamblers, and uninformed retail scum, and while we are some or perhaps all of those things, we are also now a powerful force to be taken seriously. Our culture is now the culture of the entire finance industry. Our memes are now viral across every social platform. Our shitty DD [due diligence] now moves entire markets.
This is the new market we operate in. Fundamental analysis is not working as it used to, and you have to be very careful about forming “an opinion” on your trade or investment. No matter how correct you are, a bunch of self-called “scum” or “degenerates” (this is from their own tweet, I of course do not believe it) can squeeze the heck out of your trade. While in going long your loss can be limited to your position, should you short and GME goes to zero, your risk is unlimited. Stocks can rise up to 1000% a day. We have actually had those sorts of moves many times in the past. And then you have to either add or cover with a huge loss.
Cult trading is now part of our financial world system. Social media influencers like Pomp or the Winklevoss brothers are pumping cryptocurrencies, and they can move their markets. There are opportunities in these markets, but of course, fortunes can also be lost. What you do is up to you, but remember, the market is always right. When the bulls are in power, they are in power until they are not. It does not matter if GameStop is a bankrupt business or not, or if cryptocurrency really has any value or not, you do not want to get squeezed in a short squeeze.
The lesson to be learned here is to ensure you are always on the right side of the price action and not on simply the right side of the argument.
Last, but not least, please do not miss our webinars on Technology Monday, Strategy Tuesday, and Psychology Wednesday, and never forget that Thursday is not a Thursday without mentorship by Thor. The updated list of all our upcoming webinars can be found here: https://bearbulltraders.com/webinars/
To your success,
Andrew
