Tough love for meme stock investors as RoaringKitty returns with a whimper

I woke up to watch RoaringKitty’s live stream at 2.30am last Saturday along with 650,000 others. All I lost was sleep and maybe a few brain cells, but for others it was another painful lesson about the difference between gambling and investing.

The much-anticipated event marked the first public appearance of Keith Gill, a.k.a. “RoaringKitty”, the protagonist behind the 2021 meme stock frenzy, after a three-year hiatus.

The return of GameStop investor RoaringKitty, aka Keith Gill, looks to be more of a dead cat bounce, with his devout followers likely to take hefty losses.Credit: YouTube

When Gill announced the livestream the previous day, accompanied by a screenshot showing he had purchased $500 million worth of shares (and more in options) in GameStop, shares rocketed more than 50 per cent.

It was the second time in less than a month the failing brick-and-mortar games retailer had pumped, the first 200 per cent jump occurring mid-May after Gill posted a picture of a man leaning forward in a chair on X. Welcome to the world of meme stocks.

“Gill has found a unique way to game market structure – he can use his influence to push a stock higher,” says Chris Weston, head of research at trading platform Pepperstone.

Gill was on the verge of becoming a billionaire that morning, but like most sequels, the return failed to live up to expectations.

As shares roared to life in the premarket session, in a highly unusual move GameStop management unexpectedly released the company’s earnings which were not due until the following week. They showed sales had fallen 29 per cent year over year, worse than Wall Street analysts expected.

Management immediately announced a 75 million share capital raise, a cunning decision to take advantage of RoaringKitty’s livestream pump. It was only three weeks earlier that the company did the same thing, raising 45 million shares on the back of the “leaning forward in chair” pump. Fool them once, right?

“He’s the saviour for GameStop management,” says Weston. “If you’re going to sell 75 million shares to raise capital you want to do it when the share price has rallied almost 300 per cent in a month.”

Gill, who was half an hour late to his own party, appeared to his fawning groupies adorned in bandages and band-aids as shares opened down 20 per cent following the double barrel of bad earnings and capital raising news.

He addressed audience concerns over whether he was conspiring with GameStop, whether he was a short selling hedge fund, and whether he had seen the Dumb Money movie, all of which he denied.

He then outlined his new GameStop investment thesis: “I get a feeling; I act on it.” Almost as insightful as his original pitch “I just like the stock” three years ago before the shares had fallen 70 per cent from their peak.

“I’ve always approached everything with the assumption that anyone in this game has their own agenda to push,” says Max, who goes by the alias “Madaz”, an 8-figure day trader who owes his custom-plated ‘GAMESTK’ Lamborghini to the original 2021 short squeeze.

“I believe RoaringKitty has had a huge positive impact on the stock market as he’s brought not just liquidity but overall interest into the trading as a whole,” says Madaz, despite suffering his worst single day loss of the year ($77,000) in last week’s shenanigans.

“GME is simply punting vehicle, if you time the move correctly, then you can make a solid return quickly, but this takes huge skill and/or luck,” says Carl Capolingua, a trader at Livewire Markets.

In my own short time in markets I’ve learned there are three types of participants: investors, traders and ‘degens’ (short for degenerates), a term used to refer to those who trade with gambling-like tendencies, and it’s meme stocks like GameStop that bring them out in droves.

But why any investors are still holding on to a dying company that doesn’t host earnings call and doesn’t have a plan to turn around its share price is beyond me.

“Over the long term, this company will fade and most likely become bankrupt. The stock should be treated as a trading instrument only,” warns Madaz.

“I’d argue that the large majority of GME holders have no idea about the fundamentals of the business,” agrees Weston.

A quick browse through the Reddit, the online forum where it all began in 2021 reveals an aftermath of those caught in the hype.

“Down 40 per cent!!! Felt the FOMO at $45 on GME, anybody else feeling the pain?” posted one user. “I’m a beginner investor, but I put a lot of money into GME, and then it tanked,” posted another.

“I hope investors now start to think about better ways to invest, about how to systematically identify investing opportunities, as well as learning about capital allocation and risk management,” says Capolingua.

“It’s great there’s a whole new generation of investors coming to the market because of RoaringKitty hype, but the frustrating thing is they’re learning to invest based upon narratives like ‘sticking it to Wall St’ or being part of something bigger.”

In the aftermath at the close of trading that day, GameStop shares had slumped more than 40 per cent to $28, Gill himself suffering a $235 million paper loss, only a flesh wound considering his $21 average purchase price.

“He’ll still make a handsome sum once it’s all unwound, but what that final figure looks like could be very different from what is looks like on paper now,” says Weston.

Unfortunately, for RoaringKitty’s followers it may be another painful lesson in the perils of emotional investing as the GameStop revival looks to be more of a dead cat bounce.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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