- Investing legend Bill Gross compared meme stocks GameStop and AMC to lottery tickets.
- Both companies have "very little" behind them, and their stocks will fall, he told Yahoo Finance on Tuesday.
- Gross said millennial retail traders simply believe that stocks go up, and think they deserve double-digit gains.
Legendary investor Bill Gross is still betting Reddit darlings GameStop and AMC will tumble, despite their recent comeback.
"I simply think that AMC and GameStop are lottery tickets," the Pimco cofounder told Yahoo Finance in a Tuesday interview.
"It's not that people don't win lotteries, and certainly the apes — as they call themselves — that are behind this have their day. And so, let's have them have their day."
"Apes" is Reddit slang for retail investors who are bullish on heavily-shorted stocks.
Meme stocks have soared in recent days as retail traders attempt to revive the Reddit-fuelled trade, despite the market bracing for an ever-more aggressive Federal Reserve.
Shares in video-game retailer GameStop are 46% higher, and movie-theater chain AMC's stock is up by a whopping 61% in the last seven days. But Gross noted their high volatility makes them inherently risky.
"The real valuation here is a question of volatility, and the volatility on AMC and GameStop is 120 or so," he said, referring to percentage volatility.
Volatility for an average stock, which reflects the amount a share price has differed over a period, tends to be 15%.
Trading in both stocks was halted briefly on Tuesday morning, after they saw violent swings in price and high volume.
The original "Bond King" holds bearish bets against both stocks and has been using options to short them — that is, betting their price will fall.
"If you can sell options that are out of the money levels, then ultimately these lottery ticket companies — which have very little behind them, in my opinion — will go down," he said.
A person who sells a call option is selling the right to a buyer to purchase an underlying security at a set price before a certain date.
After the astonishing Reddit-fuelled GameStop short squeeze in early 2021, the buzz behind meme stocks faded at the start of this year during a rout in the broader market. Some market observers said retail traders were rotating into cryptocurrencies.
Gross recently told the Financial Times he'd lost sleep and money betting against AMC and GameStop. But after sticking to his short strategy, he found himself up by as much as $20 million.
He now admits his bearish bets aren't faring well yet again, given that the meme stock mania has returned.
Gross isn't surprised by the influence that millennial retail traders have on the market.
"It's hard to go against momentum, and it's hard to go against the crowd, because it's a crowd that determines direction and upward momentum, if we're in a bull market," he said.
"Will they ever become more negative and bearish? It'll take some time. They simply think that stocks go up, that double digits are what they deserve. And we shall see."
