Real Estate

Meme stocks rallied again this week — but I’m not buying the hype.

Something wild happened on Wall Street this week. Meme stocks—so-called because they represent companies that have attracted a cult-like following on social media—have suddenly risen and then fallen, leaving moneyed investment bankers in disbelief. Abandoned.

In an apparent repeat of the 2021 game-stop trend that prevented Wall Street titans from shorting the company — the movie shows. Dumb money-Small investors across the country once again boosted the value of GameStop, which closed more than 60% on Tuesday after a 70% gain on Monday. The increased volatility triggered entire market ranges and stopped trading. Ailing movie theater chain AMC was another beneficiary of calls to surrender by small traders.

By late Wednesday, things had cooled down. GameStop and AMC were both down about 20% at the close of trading. However, both stocks are up about 150% and 80% over the past five days.

As in 2021, the opening week’s rally centered around Keith Gill (known online as Roaring Kitty). X, after an absence of three years on Gill Posted a photo of a gamer leaning forward in a chair, which seemed to spur buying, although he did not specifically advise investors to buy any single stock.

Why meme stocks are a bad investment.

But what’s the point, other than a satisfying dose of schadenfreude watching financial fat cats suffer? Is meme stock day trading a smart investment strategy? I don’t think so. Here’s why.

Psychological, not financial.

The main motivation to buy meme stock is psychological rather than financial because none of the companies associated with it are performing well.

In addition, as was shown in Dumb money, meme stocks rely on investors holding down the fort and not selling when the stock is high — the most obvious way to make money. Instead, the high level for investors teaches Wall Street’s billionaires a lesson: that people power is more important than any investment bank fund manager. There was no news about GameStop or AMC prior to Roaring Kitty’s re-emergence that would have caused such a purchase.

“Given my past experience in analyzing periodic bouts of meme-stock activity, consider me skeptical,” Steve Sosnick, chief strategist at Interactive Brokers, wrote in one. Research Notesreferred to in The New York Times.

Even with such dramatic swings in stock prices, how much individual low-level investors can earn is unpredictable. There’s no question that Roaring Kitty, who invested $53,000 in 2021, made a lot of money. In 2021, it showed The Wall Street Journal Screenshots of his brokerage account showed a daily profit of about $20 million on one day and a loss of about $15 million on another. Most of his followers, who invested very little money, often made it Under $5,000While others lost money.

Herd mentality versus sophisticated investment strategies

Day trading is not for the faint of heart. It means borrowing or leveraging on a daily basis while indulging in a highly sophisticated type of speculation. The losses can be massive. Basically, it is another form of online gambling.

However, a kind of euphoria begins when the risks spread to thousands of investors following a cult-like leader. Threats are minimized by numbers, and a herd mentality takes over, like a crowd at a rock concert or sports game. The latest rally came on Monday when Gill shared a meme and more than 10 clips from movies, including X-Men Origins: Wolverine, The Avengersand 1993 Western Tombstone.

“The fact that Roaring Kitty’s return should be absolutely meaningless to the stock market, (but) the fact is, it’s not exciting,” said Matthew Tuttle, CEO of Tuttle Capital Management. Reuters.

Long term investment is best.

Equating meme stock investing with real estate investing: A meme investment is like buying a house to flip in a volatile market at someone else’s behest and hoping for the best.

Educated long-term stock investing—as practiced by investing legend Warren Buffett—means taking a long, hard look at certain companies and doing research and investing based on hard facts. This often involves playing the long game, but in some cases, such as with the recent emergence of artificial intelligence (AI), a smart and educated investor who bought Nvidia stock 24 months ago tripled his money. will multiply.

Investing in the long-term stock market is all about evaluating a market for potential buys and sells, new businesses moving in, access to transportation, crime statistics, schools, taxes, population growth, and any other factors. Viewing the data. That can help you make an educated decision.

Final thoughts

The trend of meme stocks is a fun distraction for many people. There’s a certain “us vs. them” underdog mentality that working and middle-class Americans have always held back. However, as a long-term investment strategy, this is not a sustainable path.

A sophisticated Wall Street veteran can make a lot of money day trading if he has experience in options and margin trading. This can be a fun distraction for most people who invest a few hundred or a few thousand dollars based on the advice of a day trader guru like Roaring Kitty. However, investing money that you cannot afford to lose can prove disastrous and leave you in the lurch. Financial disaster.

For real estate investors, trading the stock market can help them diversify their portfolios, but only with a long-term strategy, such as investing in stocks that have strong consistency. demonstrate or are on the cutting edge of innovation.

Bottom line: If you need to turn a profit fast, rely on something other than meme stocks to deliver it.

Note via BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.

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