I like to play poker. My interest in the game has never been prize-related but rather stems from a desire to understand its rules and strategy. If you play with someone who really knows poker, it’s possible to get a good sense of what they may hold and how they will react. Their understanding of the game actually makes them somewhat predictable, and my own playing methodology is designed to exploit that. Things change when I play with inexperienced players who either don’t know the rules or choose not to follow them. You have no idea what they are going to do or what they may have. In situations like this, traditional methodology goes out the window, and you need to change on the fly.
How does poker relate to the so-called meme stocks? It has little to do with money and everything to do with the “rules” people are using when making investing decisions. Currently the “smart money” is getting ravaged by the retail flows into meme stocks like GameStop, AMC, etc. I am not saying the retail traders don’t know what they are doing. They may not know (or don’t agree with) longstanding “rules” of investing, so they are making up their own. The “smart money” looks at fundamentals, valuations, or maybe technicals. All of that goes out the window when the retail traders are trading under a new set of rules.
I am not saying the meme stocks are going to keep rallying, or that they are going to zero. What I am saying is that if you try to apply the old investing rules to meme stocks, you do so at your peril. Instead of trying to predict what is going to happen, react to what is happening. Use trend and counter trend strategies to buy stocks that are rallying or oversold, and use risk-mitigation techniques to make sure you don’t get crushed if this stuff sells off. Or perhaps just avoid them altogether.
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