Reddit-fueled investing mania will end with many losers, says expert who predicts Dow 35,000
University of Pennsylvania’s Wharton School finance professor Jeremy Siegel — known for his prescient calls on the stock market, including a prediction of Dow 35,000 this year — says GameStop mania will end with its fair share of losers.
“I think that those that are in it now are generally going to lose,” Siegel told Yahoo Finance Live. “You have to be nimble. The fundamental value is lower. All manias die out, and it will go back to fundamental value and you are going to lose.”
Those losses haven’t yet piled up for the Reddit faithful powering eye-popping moves this week in heavily shorted stocks such as GameStop, AMC Networks, BlackBerry, Koss Corporation and Bed Bath & Beyond. In fact, the gains re-accelerated on Friday as investing platforms like Robinhood eased trading restrictions, put in place, on Thursday to stem their cash outflows during the volatility spike.
Shares of movie theater operator AMC are up 65% Friday, bringing their five-session gain to a staggering 300%. Struggling video game retailer GameStop (which has become the face of the mania) shares shot 73% higher Friday. In five sessions, GameStop’s stock has gained 442%. Speaker maker Koss Corporation has seen its stock skyrocket more than 2,700% in five sessions, helped by a bewildering 125% pop Friday.
Pros such as Siegel continue to argue that eventually the fundamentals of the struggling businesses will matter again. It’s wildly unclear when fundamentals (for example sales, earnings and cash flow) will come back into focus on these companies, but when it does it could be look out below for the legion of bullish day-traders in Reddit chat rooms.
“Right now, it’s the greater fool’s theory. I know it’s not worth this, but I know someone else who is more foolish who will buy it from me at a higher price. I am smart enough to get out in time, but obviously there is a lot of people left holding the bag here at the end. They’re going to be losers,” warns Siegel.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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