Dumb Money is a 2023 comedy starring Paul Dano, Pete Davidson, Nick Offerman and Seth Rogen about the 2021 rapid rise and fall of GameStop (NYSE: GME) stock. GameStop is the world’s largest retail chain for video game fans, with over 4,400 outlets around the globe, but is best known in the investing world as the first of the “meme” stocks. 

If there was any phrase to encapsulate meme stocks and their volatility in the market, one could say, “easy come; easy go.” During the period covered in Dumb Money, GameStock reached a high of $500 ($125 split-adjusted) per share. Nevertheless, a $5,000 investment made five years ago in GameStock would be worth several multiples more, even today, when GameStop’s meme glory has since faded. However, some historical context might be in order first:

From Babbage’s to Barnes and Noble to GameStop

GameStop’s origins are complex and labyrinthian. Its roots lie with Texas software retailer Babbage’s in the 1980s, and its decision to start selling computer games for Atari 2600 game consoles, as well as Nintendo (OTC: NTDOY) games. Following two subsequent mergers, the existing entity, renamed as NeoStar, was acquired by book retail chain Barnes and Noble Booksellers in 1999. Barnes and Noble, which also owned video game seller FunCoLand and video game magazine, Game Informer, merged them with NeoStar to become GameStop, and launched its spinoff IPO in 2002. 

GameStop’s Acquisition Binge

With capital markets money fueling its expansion, GameStop went on a buying spree that quickly extended its reach into Europe, PacRim, Australia, UK, Scandinavia, and in malls throughout the US. Companies like EB Games, Micromania, Jolt Online Gaming, Free Record Shop all fell under the GameStop umbrella.

As online games started to gain popularity, GameStop began acquiring portals and publishers, like Kongregate, Spawn Labs, and Impulse. It also began diversifying into wireless, cell phone services, and other related fields by purchasing BuyMyTronics, Simply Mac, Spring Mobile, GeekNet, and then acquired over 650 locations from AT&T and Radio Shack to repurpose them for GameStop’s subsidiaries.

The Problems Pile Up

Not unlike the impact video streaming had on Blockbuster Video and its DVD and videotape business, downloadable games would rapidly erode GameStop’s fortunes. As the company’s size encumbered its ability to react more quickly to market changes, a series of no less than five CEO management changes in three years would further paralyze GameStop as losses continued to mount. Even in spite of the pandemic lockdowns, GameStop would continue to survive, as it added merchandising and signed deals with Microsoft for XBOX X and S Series sales.

The First Meme Stock

The consensus of stock analysts seem to concur that there are three components to a meme stock:

1. An almost “quasi-religious fervor” about the stock that causes its devotees to continue to hype it in social media and cause millions of small retail buy orders to trigger.
2. A short term trading mindset vs. a long term investment one, which leads to an indifference to the stock’s financial fundamentals and a greater attention to technical trading criteria, such as volume, intraday volatility, momentum, and historical support and resistance trading price levels.
3. A high short interest in the stock. Short interest in double digits is an indication that there are institutions betting on the stock to go down, and they would have to buy back large blocks to cover their shorts if there is upside volatility that could threaten their margin positions. 

As depicted in Dumb Money, GameStop met all of these criteria, which caused it to jump as high as 1500%, The Reddit and r/wallstreetbets retail investors who followed GameStop online caused millions of retail sized buy orders to spook institutional shorts into covering with additional buying, thus creating a classic “short squeeze” scenario. 

The Aftermath and What $5,000 in GME from 2019 is Worth Now

GameStop’s executive management woes continued after the meme stock roller coaster. At the time of this writing, the stock is at $10.94, a far cry from the aforementioned $500 short squeeze high. 

Nevertheless, GameStop stock at this same time five years ago was trading at $2.33. The stock would drop as low as $0.83 in July, 2019 before zooming up to $500 ($125 split adjusted) in 2021 and then plummeting down over the next three years. 

$5,000 at $2.33 per share of GME would have purchased about 2,145 shares. So even the real Diamond Hands of the GameStop boom would still be up 340% if they bought 5 years ago and those shares would be worth $21,960. 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.