Benjamin Graham, investing legend, author, and Warren Buffett’s mentor, once said, “The investor’s chief problem – and even his worst enemy – is likely to be himself.”
He was unfortunately correct about that. Investors are humans. Humans are emotional. And emotions can be difficult to control.
Take fear and greed, the two that run the markets. The first spurs irrational selling; the second irrational buying… neither of which tends to end well.
Take the Wall Street Bets page on Reddit. That’s the one that helped fuel the first “meme stock” craze.
Beginning in January 2021, heavily-shorted picks like AMC Entertainment (AMC) and GameStop (GME) went on a volatile ride that ultimately cost most of its investors billions of dollars, cumulatively. And while the May 2024 revival was less exciting, it ended up being equally fruitless.
I actually penned an open letter to the GameStop traders at the time. I hope at least some of them listened, shares of GME are down some 50% since I wrote it.
You’d think we humans would learn eventually. But, collectively speaking, we never do.
Just last Tuesday, the Reddit army suited up and went into battle once again. This time, they bid up shares of two companies especially:
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The nearly left-for-dead GoPro (GPRO)
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The struggling Krispy Kreme (DNUT)
Both ended the week up, but their one-day rallies ultimately slumped. And they’ll almost certainly fall further still before the year is up.
Because once you take emotion out of the equation, nothing else about these companies adds up.
The Data Doesn’t Look Good for GoPro and Krispy Kreme
GoPro is, without a doubt, the more emotion-based trade. Its downfall over the years has been dramatic.
The company featured a market cap over $10 billion in September 2014. Today, that figure has fallen to just $232 million – an astounding 98% drop in just over a decade.
Its quarterly revenue is down 14% year over year. And on an annual basis, it hasn’t posted a profit since 2022.
GoPro’s cash is now down 32% quarter over quarter and 58% year over year. And as that dwindles, its liabilities rack up.
In the fourth quarter of 2024, its working capital was -$17 million. By the first quarter of 2025, that loss had more than doubled to -$38 million.
Basically, all signs show that this company is on life support.
Disciplined investors would be hard-pressed to find any rational reason to own GPRO. Yet meme stock buyers can’t click “buy” fast enough.
In Krispy Kreme’s case, its year-over-year revenue was at least stable and it posted a profit in 2024. However, its long-term trend is still far from impressive.
Since its IPO in July 2021, Krispy Kreme has lost money in three out of the past four years. And its market cap has declined by over 75%.
The company’s long-term debt is up while cash is down considerably, both quarter over quarter and year over year. This cash crunch became especially apparent in May after Krispy Kreme suspended its quarterly dividend payment.
Yet two months later, a whole slew of investors thought it’d be brilliant to pour money into it.
I’m all for buying up unloved stocks. My regular readers know that well. I almost never recommend companies unless their shares are trading at or below fair value. That’s because it’s much easier to make a profit by owning something you didn’t overpay for.
But there’s a difference between undervalued companies and companies that – for lack of a better word – just look hopeless. “Cheap” alone means nothing. After all, sometimes stocks are cheap for a reason.
Investors need to make sure discounted opportunities are actually worth it first. Without quality, a discounted valuation means nothing.
Ditch the Meme Stocks for Wide-Moat Opportunities Instead
You’ll never find us chasing high-flying meme stocks here at Wide Moat Research. While we understand feeling fear and greed as much as the next investor…
We also understand how important it is to control those emotions.
For instance, it’s important to show concern about your holdings and prospective holdings. You don’t want to miss warning signs that they’re losing their market positions, their money, and/or their business sense.
That’s why Wide Moat never takes any of our positions for granted. We read up on their quarterly reports, keep up to date about their day-to-day dealings, and consistently evaluate their potential.
We just don’t let intra-day criticism – much less panic – dictate our decisions. If we’re going to sell a stock, we want to have a grounded reason why. In fact, more often than not, we like to use market panic as opportunities to buy high-quality companies.
That’s what we did during the COVID panic of 2020. We added wide-moat companies like Lowe’s (LOW), Mastercard (MA), and Broadcom (AVGO) to our model portfolio. We’re recording returns of 242.3% and 188.7% on the first two. And we closed out our position in Broadcom in April for a 706% return.
The truth is that you need lasting profits from companies that offer a future beyond a one-day or even one-year rally. As I said back in May, “Making money is great, but it means little if you can’t keep it.” Or, to borrow from Warren Buffett, buy businesses you’d be perfectly happy to hold if “the market shut down for 10 years.”
Look for companies that leave you feeling excited about the future instead of just the meme-stock moment.
In that pursuit, tune into The Wide Moat Show on YouTube this week, where I’ll be interviewing my friend and mentor, Chuck Carnevale (owner of FAST Graphs). We’ll analyze six high-quality “sleep well at night” stocks, all trading with a wide margin of safety.
Regards,
Brad Thomas
Editor, Wide Moat Daily
P.S. And tune in tomorrow as well for my take on Trump’s latest tariff win. I’ve already reached out to my European contact and can’t wait to share his thoughts on the deal!
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