{"id":9656,"date":"2021-06-16T15:37:20","date_gmt":"2021-06-16T15:37:20","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9656"},"modified":"2022-02-26T13:05:52","modified_gmt":"2022-02-26T13:05:52","slug":"mitchs-take-on-the-meme-stocks-phenomenon","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/mitchs-take-on-the-meme-stocks-phenomenon\/","title":{"rendered":"Mitch’s Take on the “Meme Stocks” Phenomenon"},"content":{"rendered":"\n

Thomas F. from Sacramento, CA asks: <\/em>Hello Mitch, I\u2019m\ncurious to hear your thoughts about the staying power of so-called \u201cmeme\nstocks.\u201d I have read your columns for some time, so I know you probably advise\nagainst chasing heat. But I\u2019m curious if you see something else at work here? A\nshift toward empowered individual investors? <\/p>\n\n\n\n

Mitch\u2019s Response: <\/strong><\/p>\n\n\n\n

Thanks for sending a question, Thomas, and for being a\nlong-time reader. I appreciate it. <\/p>\n\n\n\n

For readers who may not be familiar with the concept of a\n\u201cmeme stock,\u201d it is in reference to stocks like GameStop and AMC that have been\npopularized in online forums like Reddit and on social media. Viral videos,\nhashtags, and discussion forums have given way to wild volatility in a few of\nthese names. The financial media cannot get enough. <\/p>\n\n\n\n

You were spot-on in your question, Thomas \u2013 I do not\nadvocate getting swept up in trading mania for a handful of individual stocks.\n\u201cChasing heat\u201d is one of the oldest and most common mistakes an investor can\nmake. It\u2019s well-documented. Yet investors keep making the same mistakes anyway.<\/p>\n\n\n\n

______________________________________________________________________<\/p>\n\n\n\n

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______________________________________________________________________<\/p>\n\n\n\n

This is not to say that there are not quite a few individual\ninvestors who have made a pretty penny in meme stocks. I\u2019m sure there are plenty\nof success stories and overnight millionaires to cite. But for most investors,\nthe risk of trading based on emotional drivers and headlines far outweighs the\npotential benefit of making trades at just the right time. Over time, there are\nmore losers than winners. <\/p>\n\n\n\n

The fundamentals of the two most popular meme stocks today,\nGameStop and AMC, are just plain bad. AMC lost -$1.42 per share in Q1 2021,\nwhich was 10% lower than most analysts expected. Net income fell by -$567\nmillion in the quarter. GameStop\u2019s adjusted EBITDA was ($0.7) million in Q1\n2021, compared to a loss of ($75.5) million in Q1 2020. For GameStop, these are\nsizable losses for a company specializing in gaming, an industry that should\nhave enjoyed brisk tailwinds during a lockdown and economic restrictions.2<\/sup>\nInvestors truly focused on fundamentals should not go anywhere near these\nstocks. <\/p>\n\n\n\n

Some readers or meme stock enthusiasts may see this position\nas out of touch, which I\u2019m perfectly fine with. As I\u2019ve written before, I don\u2019t\nneed 100+% gains in a few months to help Zacks Investment Management clients\nreach their long-term goals. Most investors who are focused on long-term\noutcomes are not interested in the levels of volatility that come with\ninvesting in meme stocks, either. It\u2019s not worth the uncertainty, and it strays\nway too far from the disciplined approach we employ here. <\/p>\n\n\n\n

I do see some positives to the story, however, pursuant to\nthe part of your question about \u201cempowering individual investors.\u201d I think it\u2019s\ngenerally good to see more and younger investors interested in the stock\nmarket. Investing to build wealth over time is the crux of what we do and what\nwe believe in here at Zacks. That said, Mr. Market has been teaching individual\ninvestors \u2013 particularly overly confident ones \u2013 hard lessons for centuries.\nThe next market dislocation could deliver a hard reality check to heat chasers,\nwhich I hope reinforces the benefits of diversification and fundamental\ninvesting. <\/p>\n\n\n\n

Those are two factors that I recommend for investors who are\nbuilding their retirement nest egg. In addition, I recommend planning a\nretirement strategy that takes the \u201cwhat ifs\u201d into account. Our free guide can\nhelp you to prepare for what\u2019s to come as you strive for long-term success.<\/p>\n\n\n\n

If you have $500,000 or more to invest, get our free guide, How\nSolid Is Your Retirement Strategy.3<\/sup><\/em> You\u2019ll get valuable and\npractical ideas to help build a \u201cweatherproof\u201d retirement strategy that can\npotentially protect your retirement nest egg from any storm that could threaten\nyour financial security.<\/p>\n","protected":false},"excerpt":{"rendered":"

Trading mania is nothing new but the recent “meme stock” fad highlights the risks of chasing heat<\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9656","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9656","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9656"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9656\/revisions"}],"predecessor-version":[{"id":10375,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9656\/revisions\/10375"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9656"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9656"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9656"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}