Money Rehab with Nicole Lapin - GameStop Explained – Advice From a Redditor Who Made Millions on Stonks!

Episode Date: April 27, 2021

Nicole talks to a GameStop investor (who made a cool million or two) about why he got in early, how he mitigated risk, and why he’d never, EVER do it again. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. Hey guys, are you ready for some money rehab? Wall Street has been completely upended by an unlikely player, GameStop. And should I have a 401k? You don't do it? No, I never do it. You think the whole world revolves around you and your money.

Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. I think it's fair to say that the biggest financial news so far this year,

at least if you measure newsworthiness by how many memes are made, was GameStop, where an online flash mob virtually came out of nowhere and changed the financial game. When the GameStop stuff went down, or rather, when it went up, I can't tell you how many DMs I got asking me what the fuck is going on. Here's one I got from Kelly. Hi, Nicole. I'm calling to ask about shorting. What is it exactly? How is it different from buying a stock?

So Kelly, let me break this down for you. Normally, when you buy a stock outright, the old adage, buy low, sell high, works. But when you're shorting a stock, you're hoping to buy high and sell low, the opposite. And that's how you make a profit when shorting. I know you might be thinking, okay, buying high and selling low, that sounds like a loss to me. But here's how to think about it. Say I borrow your car. And as soon as I pull out of your driveway, I post that car on Craigslist and I sell it. For easy math, let's say I sell it for $10,000. And then I wait for a year,

you let me borrow it for a year, knowing that the cost of the car is going to go down, depreciate once a new model comes out. Let's say after a year, the price of the car does go down. Let's say it goes down to $8,000. Then I buy the exact same make and model back at a lower price, and then I give it back to you. at a lower price, and then I give it back to you. So I am able to pocket that $2,000 difference. Okay, so now let me put this example into some context. If GameStop is the car, who owned the car? Let's get into the dirty financial details. So Kelly, it seems like you have a sense that shorting a stock is different from buying a stock, and you're totally right about that. When you buy a stock, you put money down to own that stock, and then you own it. The end. You hope that the value of that stock goes up or appreciates and that you can sell the stock for more money than what you bought it for. But when you short a stock,

you actually are not buying the stock. You're borrowing the stock from a broker, like the car example, right? In the finance world, you're borrowing a stock from the broker, selling that stock at value, waiting until the stock hits a lower value, buying that stock back at the lower value, returning that stock to the broker, and then pocketing the difference. Capisce? You're probably sensing, and as GameStop showed us, stuff doesn't always go as planned, especially in the stock market, and it's extremely risky for any investor who is shorting a stock. That's the difference between shorting and buying the stock, Kelly. But remember, the rules don't change no matter how you invest. A stock can only go down to zero, but it could go

up without limit. So when you buy a stock, you're betting that the value of the stock will go up. The worst case scenario is that whatever you invested in fails and you lose 100% of your money, which really sucks. But when you short a stock, the worst case scenario is much worse. Remember, a stock can go up without limits. You're betting that the stock will go down though. So let's bring back the car example. I sold your car for $10,000, right? But what if that make and model jumps up in price exponentially? Like, let's say some celebrity bought this make and model, and now the car is being valued at dealerships for $100,000, for easy math. I then have to buy the car back because I have to give it back to you, and I just lost $90,000. And that's what happened with GameStop. The hedge

fund guys bet that the value of GameStop was going in the pooper. And then a band of people on Reddit, there was a thread called WallStreetBets, drove up the price of GameStop. So then when these brokers who had lent the GameStop stock to these hedge fund guys came calling to get their stocks back, the hedge fund dudes were shit out of luck because they needed to run out and go buy some GameStop stock back, but the value had gone up astronomically. But who the heck are these Reddit underdogs anyway, who basically turned the financial world upside down for a news cycle? I wanted to talk to someone who was in the belly of the beast, so to speak. So I called up a Redditor.

Can you introduce yourself, Kevin, to our money rehabbers? Sure. My name's Kevin Sanzone. I'm 27, live in Connecticut. I'm a purchasing manager for an e-commerce company. This kind of reads like your Tinder profile. Or my resume, one of the two. So all of us, of course, were watching everything that happened with GameStop, but you were right smack dab in the middle of it. So let's start with the beginning. When did you start following the Reddit page WallStreetBets? Yeah, I've kind of followed it sporadically for probably about five

or six years. So since it was a lot smaller, but I'd actually up until GameStop, I'd never made a trade that was based off of what they were talking about on there. So I guess I picked a good first time to follow their advice. Yeah, you did. Did you trade in the market before? Yes. Yeah. One of the first things I did when I turned 18 was open an investment account with Fidelity. So I've been in for a while. Love that. You're like the poster child of investing and maybe even for Fidelity. They want to give you a deal.

But you then just looked at Wall Street Bets. What is it like in there? Is it like a locker room? Yeah, it's definitely rough around the edges. Definitely a lack of filters. So when did you start buying GameStop shares or when did you feel like there was something different about the GameStop discussions being had? Yeah, it first popped up on my radar actually through a post I saw on WallStreetBets in like mid-late October. And it kind of sparked my curiosity as to why are people talking about GameStop in 2020?

Because as far as I knew, it was kind of the blockbuster narrative, right? It's this brick-and-mortar story that you grew up with, but that's not relevant anymore. So I started to kind of do my own research from there. Stumbled across, obviously, Roaring Kitty, for example. It was hard to avoid when I was doing research and kind of arrived at some of the same conclusions. And so I started investing in late November. What's Roaring Kitty? He's the, he goes by DeepFuckingValue, too.

Pardon me? His Reddit username, Keith Gill, is his actual name. Yeah, he, you know, he put up some great early informative videos kind of middle of last year outlining his thesis. And I mean, there's obviously something strange about watching a video of a guy wearing a headband with a cat shirt that's telling you why to invest in GameStop in 2020. I mean, it's not not strange, I will say. Hold on to your wallets, boys and girls. Money rehab will be right back. Now back to business.

So when did you start spending money on GameStop shares? At the end of last year? Or is that just when you started paying attention? Yeah, the last week of November is when I first started to get in. And then I was kind of slowly increasing my position up through pretty much the next month. So up through the end of December. So how much did you buy to begin with? So to begin with, I put in a pretty small amount.

I started with like $10,000 invested. small amount. I started with like $10,000 invested. And I just gradually went from there, trimming positions in other stocks and transferring that over to GameStop. The more kind of sure I became and the more positive momentum I saw building for it, all in, by the time I was done investing, I had just over 6,900 shares. Which meant how much money? It was about $140,000. What was it like when you started seeing the shares creeping up? It was absolutely surreal.

I mean, to log in, I mean, you know, when it first started and it was going from $20 to $30 to $40, you'd have like a $60,000 gain for the day. And that was like amazing. And then all of a sudden it starts, you it starts gapping up $5, $10 per tick. And you're having multiple $100,000 days. And at the peak, I had one day where it literally increased $1 million in the span of one trading day, which was just, it didn't necessarily feel real. Because that just doesn't seem plausible, right? I mean, I was never expecting on that scale for it to happen.

So it didn't necessarily feel real. Yeah, I'm sure. I'm sure it was like an out-of-body, surreal, crazy day for you. Do you even have a recollection of what was going through your mind that day? The million-dollar day? Yeah, I mean, I was for the couple of weeks when it was the mania, if you will, was at its peak. I mean, I was just I was glued to the ticker. I'm just watching from really from when pre-market starts at four in the morning until after hours at eight

o'clock. So at what point did you say it was time to sell? I had made a couple posts actually on Reddit showing my position just because, you know, at that point it was relatively anonymous. I went through. I didn't have anything in my profile that was going to get a link back to me, whatever. So just for kicks and giggles, I posted, you know, my position on a Saturday when it was kind of right at the peak before it fell off the first time. At that point, I really didn't know. I didn't have a set price target. I was just kind of riding it out. As I saw it, I had kind of gotten in mostly on a gut feeling. I mean, I had done the research, but then to really to have a position that big was ultimately a gut decision.

forget the exact date, but it was a Monday when it first started to fall off a cliff and something about it just felt different. You know, I mean, I'd held through other swings, but something about that just felt different. And I was like, at some point it's just pure greed that's causing me to hold. So yeah, I didn't want to be kicking myself, you know, looking back in two weeks when I said, wow, I could have sold it, you know, almost $2 million and I held for some reason. So. Very wise of you. Yeah. The, uh, part of it too was in the week leading up to that, it had had one really big swing and I had, so it was actually the day after I had increased about a million dollars. And then the following day it went down almost the same exact amount, which was like gut wrenching, obviously. And then it rebounded the next day, you know, they went up, which was like gut-wrenching, obviously.

And then it rebounded the next day. You know, they went up, I think, like $900,000 the following day. And I was like, I don't know if I want to do that again, because I don't know if it's going to do that bounce again. Yeah, that seems nauseating just hearing about it, the rollercoaster ride. Well, you certainly didn't lose house money. How much did you end up making? Yeah, all said and done, my profit was about $1.8 million.

Wowza. To say the least. Is that more money than you had ever made in the market? Yes, by far. Is that more money than you had? Yes. By a lot? Yes.

So it changed your life? Yeah, that's safe to say. Are you still working at your job? Oh, yeah. Yeah, absolutely. It's a life-changing amount, but it hasn't necessarily changed much yet. So what are you doing with that profit? Well, I got some set aside for the taxes, which is boring and disappointing, but a good problem to have. Well, how much are those going to be? good problem to have. Well, how much are those going to be? I just paid my estimated taxes for the first quarter and it's considerably more than my salary. So that was kind of a weird feeling.

Holy shit. So like approximately what? Between state and federal, it's going to be about maybe about $450,000 in taxes. Casual. Yeah. You know, no big deal. But the rest is getting reinvested. Because you want to hit another GameStop? I mean, obviously, I would love to. Who would say no to that? Being invested in the market since you were 18, like, what did this whole fiasco teach you about the stock market? It taught me I don't really have a stomach to ever make a play like that again. I mean, since I started investing, it was always conservative plays.

It was long-term. It was blue chip. It was long-term growth. And then this was completely out of character. And I realized that there's people that are trading stuff like this every day, and I don't know how they do it. So are you still following Wall Street bets? Not particularly. You broke up with them? Yeah, I snuck out the back door. I mean, they added, I forget the exact number, but it was like 6 million new members in the span of a few weeks.

So it just gets flooded with just everyone new and it's just it's become an echo chamber. The charm of when it was, you know, 150,000, 200,000 members was you could actually find decent information in there. Now it's just, it's just a pure hive mind for GameStop. Are you still invested in GameStop? Do you still have some money in there? No, I had, uh, I had intended to keep one share just for posterity. How adorable. A couple of weeks after I had initially sold out, I got back in and out for a quick scalp when it was on a ride up, and I accidentally sold that one share. And what would you tell novice investors who are looking at GameStop and WallStreetBets and seeing this meme stock phenomenon?

What would you advise them about getting into the market? Stay away from all that stuff. Really? Why? You made almost $2 million. And I'm incredibly lucky to have done that. For every GameStop situation that happens, there's just as many that stay trading in that $12 range or go lower. I mean, ultimately, I have a couple friends

that aren't aware of obviously what happened here, but know that I've been invested for a while and ask for advice. And it's just dump it into index funds. Start with index funds. Be conservative. You're not going to hit a home run in six months and quadruple your money. You know, there's this other investor who really advocates for index funds. His name is Warren Buffett.

Heard of him. Yeah. I think he said something like the greatest investment Americans make is low-cost S&P 500 index funds. I don't think he said something about GameStop, but I could be wrong. I'll check the tape. Index funds and chill, baby. That's it. So there you have it, Kelly.

And then some. And you're not the only one who in chill, baby. That's it. So there you have it, Kelly. And then some. And you're not the only one who has questions about this. Lots of people asked me why the financial world was so upset during the GameStop debacle. And first, I have a correction. The financial world wasn't upset. These hedge fund managers were upset because they are sore losers and they lost at their own game. A lot of people also asked if I thought the Redditors were doing something bad. And my answer? Hell to the no. Investors can do whatever they damn well please. That is the whole point of a

free fucking market. The market can't be free only when it works for these hedge fund guys and restricted when it works for us. Here's today's tip you can take straight to the bank. The key difference between shorting and buying stocks is that when you buy a stock, your losses are capped, but your wins are unlimited. Whereas when you're shorting, your losses are unlimited, making shorting a lot riskier than buying. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikadur and Will Pearson. Huge thanks

to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all. Money, money, money. You spend my money, money. You spend my money, money, money. You spend my money, money, money.