A Further Look | Feb 15, 2021
GameStop?... No, Game On!
David B. Root, Jr.CFP®
CFP®
The recent counter-insurgence led by retail investors on the Reddit App represent a microcosm for today’s state of affairs. As a group of investors used GameStop as their protest of the conventions of the past on Wall Street, others were left wondering what the long-term effect would be on their investment strategy.
We have been talking here about the opportunities looming for massive growth in industries related to the 5G / 4th Industrial Revolution.’ What we saw played out in the ‘short squeeze’ occurring with GameStop and several other company stocks isn’t investing. It’s gambling.
On weekends, many Reddit rebels bet on sports and on weekdays they are betting on stocks. By all accounts, it is a strategy one step removed from the Lottery. These are mostly young investors, and we recognize the huge potential for Next Gen in growing their wealth. However, we are more about mitigating risk with the help of a Next Gen advisor who is of similar age. It’s why we developed our DBR Next financial planning service. It is a great example of how to bring sound advice to a segment that demands (and needs) it.
Now, back to reality. Corporate earnings are exceeding expectations and there is growing sentiment that the economy will have a very successful 1st Quarter. Optimists suggest growth of as much as 6% is possible. As we must always do in this business, especially in times of such volatility as the GameStop phenomena, we’ll attempt to offer a voice of reason.
There is a vaccine in place giving hope that we will be opening up businesses and schools again soon. This is the best stimulus we could hope for – far beyond what the package from congress is trying to do. The prospect of returning to our ‘almost normal’ lives and focusing on the positive could release suppressed energy in a manner we have not seen in a very long time.
Several years ago, the National Hockey League went through a lengthy lockout due to a labor dispute with its players. The game went dark for months, and many skeptics declared this could mean the end of the NHL as a major sport on a par with the NFL, NBA and MLB.
But when the dispute was finally settled, the NHL rolled out a campaign that was designed to win back their fans. Under the banner, ‘Game On’, the league unveiled new rules to speed up the game and allow for more scoring. It also introduced the Outdoor Classic concept of hockey being played outdoors. Today the sport enjoys higher popularity than ever before.
The NHL had a long-term plan in mind to make the sport more popular with younger fans. If young investors play the game the right way with smart, long-term calls on the right themes and asset allocation, they can still hope to double their money - but over time. Not in one afternoon as the Reddit mob is pursuing.
For the record, many in the industry saw GameStop as an attractive long-term investment before the Reddit rebellion. The company added new investors and Board Members in January including Ryan Cohen, the former CEO and Founder of Chewy, Inc. Cohen’s online business experience could help transform GameStop into the ultimate destination for gamers. He invested based on fundamentals and the potential of the gaming market. He didn’t gamble.
So, it is ‘game on’ for those who understand the larger opportunity before us. That is true even for GameStop. Of course, managing your financial future successfully requires planning and investing for the long term. Our belief is that having a human advisor, experienced and armed with the right technology are more adept at handling your affairs than relying on an app to reach your goals.
Smart money is on the side of those who play the game the right way.
Thanks for reading.
Dave
This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.
David B. Root, Jr.
CFP®