How to Find the Next Moonshot Stock, According to ‘Roaring Kitty’

Keith Gill, aka Roaring Kitty, aka DeepF—–gValue, aka the slayer of short-sellers, is suddenly one of the most influential stock pickers in America.

After heinspired a dizzying 400% rally in GameStop Corp. that shook Wall Street this past week, Gill has built a legion of passionate followers on Reddit and YouTube who gush over how he made them — at least temporarily — rich. Now, knowing what other stocks, or kinds of stocks, he likes is a matter of investor interest.

Dressed in the kind of ironic, tacky cat themed t-shirts you’d expect to see hanging in a Jersey shore boardwalk shop, the 34-year-old former marketer for Massachusetts Mutual Life Insurance Co. appears on YouTube videos that provide a view into the investing process he uses to target annual gains of 50% to 100%. The posterchild for an online army of traders that tends to ignore value when making picks pursues an approach that’s traditional at its core.

“I’ll drop this bomb on you right at the start, I’m a value investor and I feel like some of you are rolling your eyes now and laughing at me,” Gill said in his first investment style video. “I’m not in the camp that thinks value’s been under-performing, I actually think it’s been tremendously successful over the past decade.”

Roaring Kitty

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The problem, according to Gill, is that the value style of investing has been pigeon holed. In order for exchange traded funds to track the style, it’s been reduced to formulaic rules, while the heart of the approach is highly subjective. And those ETFs have become the yardstick by which the approach has been measured, he explained in the video. Gill didn’t respond to a request for comment from Bloomberg.

Consider the rules for the $62.3 billion Vanguard Value ETF, the largest such fund in the world. It tracks the Center for Research in Security Prices U.S. Large Cap Value Index, which puts stocks into the value bucket based on five factors: book to price, forward earnings to price, historic earnings to price, dividend-to-price ratio and sales-to-price ratio. As you might expect, the ETF is heavy on classic U.S. companies like Warren Buffett’s Berkshire Hathaway Inc. and Johnson & Johnson, and missing the tech stocks that have driven the market for the past decade.

“We all lean on those over-simplifying ETFs to measure the style’s success,” he said. “But that’s not a good way to measure a bona fide value approach. Part of that is because value is so subjective, it’s not so simple that you can just boil it down to a couple of metrics.”

Unlike what you might expect from a typical value investor, Gill was outright dismissive of discounted cash flow modeling, calling it a “waste of time.” And Gill embraced the use of technical analysis, using stock price charts to find good entry and exit points for his positions, a technique often dismissed as a form of financial voodoo by followers of value-investing icons like Benjamin Graham.

Gill gives his own value investing criteria in his second introductory video. And like the CRSP Index, he too relies on five factors, albeit using them as guidelines rather than rigid rules.

A discount: “It’s often in relation to my crude fundamentals based value, but sometimes it’s just based on the chart.”
Leverage: “I don’t shy away from leveraged companies, I know some people do, but the way I see it is that that’s where some of the best opportunities are.”
Insider buying: “I weight this quite heavily I’ve learned, especially during market selloffs, and what I find is that any insider buying is better than no insider buying.”
Insider ownership: “Generally, higher insider ownership is better, I like to see at least 20%.”
Confidence: “It’s a simple introspective question, but I find it’s just really helpful for keeping myself honest.”

And in a great bit of irony, back then in July, before his E*Trade account swelled to $33 million,according to the Wall Street Journal, Gill made an admission: he was a short-seller.

“I occasionally short stocks, it’s becoming a bigger part of my process, I’m trying to incorporate it more and more, but I still focus mostly on the long side,” said Gill on July 13. “You’ll see me short, sometimes just because I’m bored. The timing of it is so difficult as everyone knows.”

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