Meme stock execs like Ryan Cohen Trapped, Playing Along: Richard Smith

  • GameStop and AMC executives support the meme stock game, said risk expert Richard Smith.
  • “They’re trapped and they have to play the game because they’re getting paid to do it,” he told Insider.
  • The comeback of meme stocks has been driven in part by a psychological ploy called “anchoring bias,” he said.

According to market risk expert Richard Smith, executives at companies like Reddit darlings GameStop and AMC are playing into the hyper-speculation behind meme stock trading.

“They’re in this game now,” Smith said in an interview with Insider Thursday, referring to running companies whose stocks are getting a boost from meme trade mania.

“They are trapped and have to play the game because they get paid to do it.”

GameStop chairman Ryan Cohen caused a stir after last week he increased his stake in the video game retailer by buying another $100,000 worth of stock worth $10 million. His purchase was taken as a vote of confidence that new management will continue to invest heavily in the company with their own money, Smith said.

Smith said Cohen was aware his increased holdings would have been another catalyst in GameStop’s rise.

“He’s a billionaire, so $10 million is kind of pocket change,” Smith said. “And maybe he’ll look at it and say, ‘Man, if I make a $100,000 stock purchase right now, I can really juice up.’ It could really take the stock from $100 to $170 where it is today.”

“And then he’s yelling from the rooftops that he just made 100,000 more shares and the stock will double in a couple of weeks. That’s good for him.”

GameStop shares are up 40% over the past 30 days, compared to a 6% month-over-month increase. Plans for a stock split gave shares another boost on Friday.

Meanwhile, AMC’s rally was more the result of the cinema chain’s deal to buy a large stake in a Nevada gold mine.

Adam Aron, CEO of AMC, told Reuters the company will seek more mergers and acquisitions “where AMC can reach for the stars and make intriguing investments with potentially attractive returns.”

Smith, who is familiar with the pull of risky investments, pointed out red flags in Aron’s quote.

“What does that mean? It doesn’t mean anything,” he said. “And that’s the problem with the whole idea of ​​a meme stock, that it’s completely divorced from any fundamentals.”

“And it only moves what people say about it. And it doesn’t matter what it actually does.”

AMC shares are up 35% over the last month after barely moving in February.

Smith, the author of the Risk Rituals newsletter, said meme stock’s comeback was fueled by a combination of a psychological ploy called “anchoring bias” and a rebound from the market’s March 15 bottom.

“They are a kind of psychological operations based on that


volatility

,” he said.

“The system works like this right now: you get volatility, you get these sharp moves, the media piles up, everyone starts focusing on it, and then you have FOMO.”

According to him, because buying GameStop at around $80 a share seems so much cheaper than last January’s record high of $347, retailers often think they might miss out on a profit if they aren’t part of the speculative trade year.

He believes this recent resurgence in meme stocks is like the Reddit-fueled frenzy of early 2021, only this time it will be much shorter.

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