SOME YEARS, THE DUMB MONEY WINS
In 1969, the third-ever Super Bowl was a contest between the champions of two leagues – the Baltimore Colts of the long-established and dominant National Football League and the New York Jets of the upstart American Football League. The NFL had won the first two Super Bowls easily, and the Colts were favoured by 18 points, almost three touchdowns. The Jets were led by the flamboyant and loud-mouthed “Broadway Joe” Namath, who promised a victory. To the surprise of most everyone, Namath delivered one of the most famous upsets in sports history. The smart money was on the Colts, and it lost.
The investing world is filled with sports metaphors. An investment that looks like a certain winner is called a “slam dunk.” A stock that goes straight up might be christened a “grand slam”, or at least, a “home run.” Just as in sports, sometimes we see unlikely upsets in the world of investing.
Take the case of GameStop, one of the so-called “meme stocks” of 2021. A money-losing retailer of video games, its share price soared from $10 to $350 over a three-week period in January 2021. Propelled by over 3 million retail investors who had grouped together on an internet chat site, the concentrated buying forced short sellers to capitulate and take huge losses, estimated to be in the billions. By the middle of February, the stock was back down to $50. The retail investors had conquered the pros, and as Wall Street would put it, the dumb money won. It was the equivalent of the Jets beating the Colts.
GameStop is a great example of a stock price that became completely unpinned from financial fundamentals. At no time was the value of the company a factor in the movement of the stock price. It was all about overwhelming demand and a limited supply of stock. The new-found ability of retail investors to move as a pack, facilitated by social media, caught the pros off guard. The same thing happened with a number of other stocks, including cinema chain AMC, rental car giant Hertz, and most recently, retailer Bed, Bath and Beyond.
Bed, Bath and Beyond became a meme stock in 2021 and soared from $4 to $50 in early 2021, even though the company itself said that it was near bankruptcy. The stock frenzy was intensified when the CEO of GameStop revealed that he held a 10% stake in the company. While on the verge of filing for bankruptcy in March 2023, Bed, Bath sold $300 million of newly issued shares in an offering which was eagerly bought up by retail investors. This in spite of continued warnings by the company that the common stock would be worthless in the event of bankruptcy. Six weeks later, on April 23rd, the company declared bankruptcy, and the stock did indeed fall to zero. The $300 million went to pay off some of the company debt. This time, the dumb money was obliterated.
At Baskin Wealth Management we believe that we are engaged in a sober, well-reasoned and time-tested process of evaluating companies and their securities, based on their actual economic prospects. Sometimes we are wrong, and more often we are right, and the value of the shares that we purchase for clients go up when the underlying companies perform as forecast. None of this has anything to do with how popular a stock is on the internet, whether it is owned by prominent personalities, or how much hype it is getting in the press. This is an effective way to build wealth over time, but nothing works every year. Some years the dumb money wins, just as in some years Joe Namath and the Jets win the Super Bowl. As it turns out, 2025 was a year to bet on upsets.
The emergence of the artificial intelligence (AI) industry and the continued use of social media platforms to promote stocks has, in our view, seen a break from the rational evaluation of company values. Over the past six months, smaller unprofitable companies, some of which have never been profitable, have risen about 45%, far outpacing the gains of fundamentally sound, profit-making companies of the same size, which have gone up less than 5%. On the other end of the size spectrum, we have seen the emergence of a number of companies now valued in the trillions. These gigantic market caps, never before seen, are based on hopes that AI will prove to be tremendously profitable. So far, it has not been profitable at all, and the ability of the major companies to fulfill their plans for massive data centers and a huge increase in computing power will largely depend on the willingness of the bond market to fund hundreds of billions of dollars in capital expenditures. Nobody knows if that will happen.
We are not happy, of course, that our clients have not seen their portfolios grow at the same rate as the indexes this year, but we are very firmly of the belief that the most dangerous kind of investor is the one who does not have a reliable process and a well-articulated set of beliefs in how investments should be made.
We will give the final word to the early 20th century pundit and columnist Damon Runyan who famously said: “The race is not always to the swift, nor the battle to the strong; but that’s the way to bet”. We will continue to invest our clients’ money in the proven and profitable companies that build wealth over time.
Podcast
Sticking to Stocks – November 5, 2025
Reviewing Q3 earnings for Apple, Amazon, and more – November 12, 2025
Drilling Down on Canadian Energy – November 25, 2025
Media Appearances
Ernest Wong on BNN Bloomberg’s Market Call – November 4, 2025
Benjamin Klein on BNN Bloomberg’s The Close – November 5, 2025
Barry Schwartz on BNN Bloomberg’s Investor Outlook – November 21, 2025