“Roaring Kitty,” the X user behind the GameStop craze of 2021, returned to the internet this week and sparked a mini-rally for the videogame retailer that had investors questioning whether meme stocks were due for a comeback.
But is it possible that one investor — and a cryptic X poster at that — can have so much influence?
As the Wall Street Journal asked, is Roaring Kitty the internet’s Warren Buffett?
Northeastern University economists Mark Hooker and Bob Triest say it is possible for an individual to influence individual stocks … to a point. But significantly influencing the overall market is basically impossible.
“In the short run, individuals can potentially have an impact on the price of relatively thinly traded stocks through a combination of their own trading and through communicating their beliefs and actions to others,” says Triest, professor and chair of Economics at Northeastern.
Triest says influencing a stock price is more likely if the stock in question is thinly traded (traded relatively infrequently) and the influencer investor has a lot of money and/or a high equity stake in the stock.
But that only goes so far.
“It is much less likely that an individual would be able to influence the price of a stock that is very heavily traded,” Triest continues, “and essentially no chance that they could influence the price of a market index such as the S&P 500.”
Hooker, teaching professor of economics at Northeastern, concurs, explaining the chances with a little math.
“The overall valuation of the U.S. stock market … is on the order of $30 trillion or $40 trillion,” Hooker says. “All the shares of GameStop put together are about $3 billion. So you need a lot less money to move a $3 billion stock than a $30 trillion market.”
“I think that at the overall market level, it mostly kind of finds its way to a reasonable price,” Hooker continues. “I don’t think individuals can push the market very far away from where it should be.”
The GameStop saga goes back to 2021 when a few Wall Street hedge funds tried to “short” GameStop stock and ran into resistance mounted by Roaring Kitty.
Hooker explained that to short a stock, a trader temporarily borrows a stock from a broker that they believe will decline in value. The trader sells the stock immediately with the hope of buying it back at a lower price once it is time to give the stock back to the original broker. The trader then pockets the difference between the original sale price and the price to which it declined when the trader bought it back.
But Roaring Kitty and people he knew on the social media platform Reddit pulled off what Hooker called a “short squeeze”— rallying to save GameStop by trading the stock higher and higher — from less than $5 to $120 in four weeks. Suddenly, traders needed a lot more money to buy the stock back at the end of the loan, and the investor forced them to take the losses. One hedge fund involved, Melvin Capital, later had to shut down.
This week, GameStop’s rise was more muted and was followed by a rapid fall.
But it certainly evoked memories of 2021.
Hooker says that short squeezes rarely make the news. But the GameStop saga was notable in a few ways, Hooker says.
First, there were internet traders going up against (presumably) more sophisticated investors involved in hedge funds.
The internet also played a major role: the ability to harness the power of the web to communicate quickly and build community made the story feel very current, Hooker says, and online brokerages like RobinHood enabled internet traders to cheaply and quickly buy and sell the GameStop stock.
Finally, the story was picked up by the author Ben Mezrich and then made into a movie.
But one thing that wasn’t novel about the GameStop short squeeze was that a powerful individual opined on the market.
“People are doing that all the time,” Hooker noted.
As for whether Roaring Kitty is the internet’s Warren Buffett, Hooker noted a major difference.
Buffett is known for “fundamental analysis” and a “buy-and-hold” strategy, Hooker says.
“Study things, find something that you want to buy because it’s inexpensive relative to its value according to your analysis and then hold that position for maybe decades,” Hooker says.
RobinHood’s typical investors, however, “are usually in and out for — in some cases — multiple trades a day, but certainly not holding a typical position for more than a few months,” Hooker explains.
But primarily, Buffett’s Berkshire Hathaway company, with a market capitalization of nearly $900 billion, is many orders of magnitude more wealthy than Roaring Kitty and friends.
“That’s a lot of little Robin Hood accounts,” Hooker says.
