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GameStop (GME) is once again on traders' minds after saying it would start to buy bitcoin (BTC-USD) to diversify its cash reserves.
And for those who continue to love the struggling gaming company, its controversial CEO Ryan Cohen, and its meme stock peers, Ritholtz Wealth Management co-founder Barry Ritholtz has some potentially sobering advice.
“We all imagine that we're going to find that one random stock that's going to turn $10,000 into $10 million. I'm sorry, but it's a lottery ticket,” he said during a conversation on the Opening Bid podcast with Yahoo Finance Executive Editor Brian Sozzi (see video above or listen below). “You're more likely to be hit by lightning than you are to do that.”
Ritholtz opened his wealth management firm in 2013 and has racked up a string of recognitions that include ETA Advisor of the Year, placement on the FT top 300 US Advisors list, and being the fourth-fastest-growing registered investment adviser in America. He's also the author of "How Not to Invest," which came out on March 18.
One essential way to destroy wealth, per Ritholtz, is joining the meme stock craze without a plan. Meme stocks such as GameStop became mainstream in 2021 after apps like Robinhood (HOOD) gamified trading and people were stuck at home during the pandemic.
The frenzy saw shares of challenged companies like GameStop and BlackBerry (BB) spike out of the blue. During January 2021, GameStop went from under $5 per share to over $81.
Although some amassed fortunes, “you don't see the other 10 million meme stock traders who made no money or worse — went broke,” Ritholtz noted.
More recently, after reporting a dismal year with sales down by 30% and profits declining by nearly 100%, GameStop announced plans to enter the crypto space. Lost in the initial excitement is that the company is technically still a retailer that operates over 3,000 retail stores.
“Have at it,” Ritholtz advised folks. “When I was a kid, I used to watch 'Mutual of Omaha's Wild Kingdom.' There was always one [gazelle] that wandered away from the crowd and you knew what was going to happen. That was going to be lunch for a bunch of lions.”
Pivoting from nature to sports metaphors, Ritholtz noted that the average basketball player wouldn’t take on a legend like Michael Jordan or LeBron James, and similarly, the average investor is likely to not strike it rich in meme stocks.
“You just see the one or two people who made a ton of cash and everybody thinks, ‘I want some of that lottery ticket,’” he said. “I'm sorry to be the fly in the ointment. You're not. You're not going to beat Michael Jordan. You're not going to find a bajillion-dollar stock.”
Obviously, there are outliers, which he also acknowledged through the lens of an investment adviser.
“If you are, for some reason, fortunate enough to own Nvidia or Amazon or Apple or Google or Microsoft or any of the great stocks of our era," he said. "If you own them cheaply, well, be sure to take care of the rest of your portfolio. Find a way to manage around that and don't risk taking a large fortune and turning it into a small fortune."
For Ritholtz, the best investment plan is to stay cool and remember, “there's no magic formula,” he said. “There's no Substack that's going to get you rich.”
GameStop's stock currently trades at $21.73, down 30% year to date.
Three times each week, Yahoo Finance Executive Editor Brian Sozzi fields insight-filled conversations and chats with the biggest names in business and markets on Opening Bid. You can find more episodes on our video hub or watch on your preferred streaming service.
Grace Williams is a writer for Yahoo Finance.
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