Why Investing in GameStop (GME) Right Now is a Winning Strategy

The partied-craze for the Reddit-inspired takeover of the stock market appears to be slowing as GameStop Entertainment (GME) is down nearly 60% since yesterday. Last week, the stock nearly five-folded in valuation and today, we’re starting to see the stock slow. However, I believe that this may be the beginning of the short-squeeze saga. While many investors are calling this the end of the line for Reddit and WallStreetBets (WSB), there is reason to believe that GME will see a massive spike in valuation in the next coming days.

To really understand where the big picture comes into play, we need to first take a look at stock history. Coming out of the 2008 financial crisis, a similar situation played out with Volkswagen (VWAGY). Many retail investors were frustrated from their own financial situation, causing a similar revolt to occur. Thousands of retail investors noticed that large hedge funds were short-selling Volkswagen, believing the German automobile company would fail. However, contrary to that belief, thousands of retail investors managed to push the valuation of Volkswagen up nearly 12 times. Sound familiar? GME is having the same situation happen to it. Similar to the historical trend of VWAGY, economists noticed a large drop of stock price prior to the explosion in the financial market. It’s reason to believe that not only are we at that current dip in the stock trend, but we many soon see a massive stock over-appreciation.

While it may not be looking good for GME, let’s offer up an alternative to what we’re seeing.

By many accounts, it appears that retail investors are pulling out of GME at a higher rate than investors are buying in. However, when looking at buying/selling ratios, there are a lot more people buying into the stock. I believe, based on my own financial experiences, that GME is preparing for a hike in appreciation and people are waiting to buy into a pump in the stock.

This isn’t the first time that a pump has occurred in the stock market and it certainly won’t be the last time. A pump, or “pump and dump” is when investors work to inflate the stock at the same time, causing the stock to become overappreciated. Then, when financial gains are met, the investors pull out, dropping the stock down back to (or lower than) its original price. While scary, this can prove to be an effective tactic for early investors to utilize and make significant financial gains.

Source: Reddit (r/investing)

By creating this artificial pump, as shown by VWAGY in 2008, investors have a limited time to make money. While short-selling standards are different compared to 2008, there still is a possibility that GME still hasn’t seen its highest mark yet. While no one knows what the financial outcome of GME is, if you’re planning on investing in GME, now would be the perfect opportunity. Although the stock is down, there is good potential for GME stock to increase again. Only time will tell what happens to the stock and who pulls forward: short-selling hedge funds or retail investors? Either way, capitalizing off this battle is still a possibility.

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