OP #261: Roaring Kitty's Return: A Fascinating Yet Cautionary Tale

Author

Darren Herman
June 11, 2024

Good morning OP Community,  

If you are reading this on Tuesday, I’m down in Dallas at Fogo de Chao HQ working on some exciting things. Just over a year ago, Bain Capital acquired Fogo de Chao and I’ve been working on it ever since.

🎵 I have a fun but controversial statement to make as it pertains to music: Girl You Know It’s True (Spotify, YouTube), by Grammy Award Winning Milli Vanilli, has an incredible beat. Forget their issues at the time, which are blips on the radar today, I have been enjoying bringing this song back into my rotation. Two other songs on my rotation: Rizz by Ayybo (Spotify, YouTube) and Houdini by Eminem (Spotify, YouTube).

⚡A good friend sent me an email after the last OP. He said, “it’s clear you do not use GenAI to write your OPs - there are grammatical and spelling mistakes.” Yes, that’s right. I do not. I look at the OP as a vinyl record; a warm, real, and crackled sound. Is it perfect? No. But it’s me.

🍎 Apple finally entered the AI space with their newly announced Apple Intelligence ecosystem. Here’s a recording of their full keynote. And here is Ben @ Stratechery’s take. As a loyal Apple user, I’m excited to play with the new tools they roll out. I’m sure there will be no lack of analyst coverage against these tools as well.

🏀 You may be used to me talking about the Knicks. In this OP, I’ll give the Celtics some kudos. I took my son to Game 1 of the NBA Finals this past Thursday. I may have been the only person in the TD Garden who wasn’t wearing a Celtics shirt, but I still had a blast. I can’t see how the Mavericks can beat the Celtics. A healthy Porzingis is critical to winning - and if he remains in good health, I predict Celtics in 5. The next two games in Dallas should be a bit more difficult.

Lets get started with some fun reads:

Thanks again for reading. I heard from SO many of you after last week’s OP about the learnings from the creation of Varick Media Management (VMM). There were so many people who touched, inspired, and participated in VMM over the years. I am grateful to all of you.

Darren

Roaring Kitty's Return: A Fascinating Yet Cautionary Tale

This past week, I, along with 650,000 others, spent 30 minutes watching Keith Gill, aka, Roaring Kitty's first public YouTube Live in years. His return intrigued me, particularly given my fascination with the GameStop (GME) stock run-up orchestrated by the Reddit and retail crowd a few years ago. While I owned zero GameStop stock (due to restrictions at my job), the whole situation was captivating, especially the impact of Reddit on financial markets.

My son and I also watched "Dumb Money" when it came out. If you haven't seen it yet and you're in finance, marketing, or community management, I highly recommend it.

Now, let’s cut to the chase. The YouTube Live was surreal. Initially, I thought it was one big joke… but it wasn't. Roaring Kitty has over $200 million invested in GME in an E*Trade account, which he proudly displayed. This amount has appreciated to 3-4 times its initial value in the recent run but then fell off in the recent decline. He emphasized that he's a single investor, investing only on behalf of himself.

I understand the appeal of making a big bet on a company. That’s what I do at work. However, I was waiting to understand WHY he's betting on GME. Investment theses fascinate me and help me become a better investor so I love hearing various theses.

Unfortunately, there was no thesis, or maybe he didn’t want to talk about it. Roaring Kitty kept saying to “trust management,” which seems a far cry from an actual investment strategy. Are there CEOs I’d personally back without a thesis? Yes. But would I go all-in with $200 million in cash? Well, I don't have $200 million, but if I did, this seems like an irrational decision.

As I pondered the Live session further, I realized he's not investing—he's gambling.

But this isn't what fascinates me.

What fascinates me are the retail investors who fall for this. The folks who believe in the “get rich quick” mentality. I mean, you do you, but I can't imagine this ending well for anyone, including Roaring Kitty. We’ve probably all made a “quick” buck every once in a while. For me, it was selling some basketball cards in the run up of the sports card market, but I knew that was unsustainable.

I read through the YouTube Live chats and spent a good hour on Reddit reading comments. The amount of false trust people have in Roaring Kitty is significant.

I understand that people made a lot of money on the momentum swing of the stock a few years back. Many of these people are now loyal to Roaring Kitty.

However, I wish retail investors realized that momentum swings are just that—momentum swings. Roaring Kitty has found a way to activate the Reddit crowd to push a stock forward. Good for him.

Hey, maybe I’m wrong. Maybe momentum trading isn’t as bad as I think. Or maybe Roaring Kitty has a solid thesis somewhere that he’s not disclosing. But, with the information presented by Roaring Kitty as to why GME is a good bet, I’m highly skeptical.

To me, this feels more like a game of manipulation of getting the retail investor (e.g. most of us) to buy into the hype.

But you do you. Just be careful out there.

Come Serve, Volley, and Ace With Me - July 24.

I’m sure you’ve seen me talk about Silicon Alley Sports in previous Operating Partner letters. We have our next event coming up: 36-player doubles tennis tournament in New York. All genders, race, and ethnicities welcome. All we ask is that you are somehow part of the Silicon Alley ecosystem and you have a passion for tennis. You sign up as a single and we rotate you through the tournament.

To learn more, click here. Reach out with any questions.

All monies left over from hosting the 2024 Silicon Alley Sports event series will be donated to our 2024 impact partner, Team Daya.

The below links are articles that I read during the past week. I am sharing them because I think they are interesting. I may not agree with everything in every article. If you come across an article that you might think I or the OP community would like, I encourage you to reach out and share it. I reserve the right to select whether or not it gets shared in the OP.

Bubble.ai (Scott Galloway)

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