Keith Gill, known online as Roaring Kitty on YouTube and DeepFuckingValue (DFV) on Reddit, became a central figure in the 2021 GameStop short squeeze, a phenomenon that captured the attention of the financial world and challenged traditional investing norms. Understanding how he started and initially made money requires examining his background, his investment philosophy, and his strategic approach to the GameStop opportunity.
Gill's background is rooted in finance and analysis. He held a Bachelor of Science degree in Business Administration from Stonehill College, where he also excelled as a track and field athlete. Prior to his involvement with GameStop, Gill worked as a financial wellness educator for MassMutual, a role that provided him with experience in explaining financial concepts and investment strategies to individuals. He also held a Chartered Financial Analyst (CFA) designation, demonstrating a commitment to professional development and adherence to ethical standards within the investment industry. This background suggests that Gill was not merely a lucky amateur but possessed a foundational understanding of financial markets and valuation techniques.
Gill's investment philosophy, as revealed through his online posts and videos, leaned towards value investing. Value investing, popularized by Benjamin Graham and Warren Buffett, involves identifying undervalued companies, often those facing temporary challenges or overlooked by the broader market, and investing in them with the expectation that their intrinsic value will eventually be recognized. Gill believed that GameStop, despite its struggles in the face of digital distribution and changing gaming habits, possessed underlying value that was not reflected in its stock price. This conviction stemmed from his analysis of the company's financials, including its cash reserves, book value, and potential for a turnaround.
His initial foray into GameStop wasn't a sudden, opportunistic bet. Gill began accumulating GameStop shares in 2019, long before the stock became a meme sensation. He posted screenshots of his brokerage account on Reddit's r/wallstreetbets, documenting his accumulating position and his rationale for investing in the company. He didn't frame it as a get-rich-quick scheme, but rather as a calculated investment based on fundamental analysis.
The key element of Gill's strategy was his use of options. Specifically, he purchased call options on GameStop. A call option gives the holder the right, but not the obligation, to buy a specific number of shares of a stock at a predetermined price (the strike price) before a certain date (the expiration date). If the stock price rises above the strike price, the call option becomes profitable. The advantage of options is that they allow investors to control a larger number of shares with a relatively small amount of capital, offering the potential for significant gains (and losses). Gill's purchase of call options acted as a lever, amplifying his exposure to GameStop's potential upside.
Gill's early earnings from GameStop came from a combination of factors. Firstly, the underlying stock price gradually increased as he and other investors, influenced by his analysis, began buying shares. This direct increase in the value of his stock holdings contributed to his profits. Secondly, and more significantly, the value of his call options increased exponentially as the stock price rose. The price of an option is not directly proportional to the stock price; it is also influenced by factors such as time to expiration, volatility, and interest rates. As GameStop's stock price rose, the demand for call options also increased, further driving up their value. This phenomenon is known as "gamma squeeze," where option sellers (typically market makers) are forced to buy more shares of the underlying stock to hedge their positions, further pushing up the stock price and creating a feedback loop.
The community aspect of r/wallstreetbets played a crucial role in amplifying Gill's impact. His detailed analyses, presented in a relatable and engaging manner, resonated with other retail investors who were also seeking undervalued opportunities. He didn't portray himself as a guru or expert, but rather as a fellow investor sharing his research and rationale. This transparency and authenticity fostered a sense of trust and community, encouraging others to join him in investing in GameStop. The collective buying pressure from this growing community further contributed to the stock's upward trajectory and the increasing value of Gill's options.
It's important to note that while Gill's early success with GameStop was significant, it was also accompanied by considerable risk. Options trading is inherently risky, and the potential for losses is substantial. Had GameStop's stock price not risen, Gill's call options would have expired worthless, resulting in a complete loss of his investment. Furthermore, the GameStop short squeeze was an unprecedented event, and its sustainability was always uncertain.
In conclusion, Roaring Kitty's start and initial earnings were not solely based on luck or random chance. They were a result of a combination of factors: a solid financial background, a value investing philosophy, a strategic use of options, and the power of community on platforms like r/wallstreetbets. He identified what he believed to be an undervalued asset, communicated his analysis effectively, and leveraged the potential of options to amplify his returns. While his story is often portrayed as a David-versus-Goliath narrative, it's crucial to remember that it also involved significant risk and a nuanced understanding of financial markets. His actions ignited a movement that challenged the established order and raised important questions about market manipulation, accessibility, and the role of retail investors in modern finance.
