WHAT THE HECK ARE MEMES?

by Powers Investments Management, LLC August 23, 2021 389 Views

Disclaimer: Good Day, Readers. WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.

WHAT THE HECK ARE MEMES?

MEME STOCKS THAT IS!

A meme stock’s price is driven by social media talk versus REALITY!. One platform at the center of meme stock rallies is Reddit’s – WallStreetBets. WallStreetBets has over 10.2 million readers and growing! {I have a Reddit – WallStreetBets account and sometimes look at the crazies; sorry, traders stock picks.}

The platform results in hundreds of thousands of people following trends in a rallying stock, and MANY buy or trade the stock. Will define traders versus investors later below.

As people start buying, momentum in the stock price builds. More start talking about this super, fabulously delicious stock that is about to attach to a SpaceX rocket, so more people buy the stock. Next, the television Talking Heads (excellent paying job, I want one) start spouting off about the stock every five minutes. Now you have a Meme Stock!

As more people buy, the price increases. Sounds good so far, right? The inevitable problem – if zero business fundamentals support the company, the downward plunge in price may resemble the chart below.

Do NOT bet money you NEED on a Meme stock!

I NAMED THIS THE WTF {NO PACEMAKERS ALLOWED} TRADE!

SOME 2021 WELL KNOWN MEME STOCKS:

Virgin Galactic Company (NYSE: SPCE)
GameStop Corporation (NYSE: GME)
AMC Entertainment Holdings Inc (NYSE: AMC)

AMC THREE YEAR CHART

AMC Entertainment Holdings Inc. owns and operates movie theatres located in the United States and Europe. As you can see, AMC hit a high of about $21 in 2018. During the 2020 Pandemic, AMC movie theatres mostly remain shut down.

The below chart shows what happened in 2020 during the pandemic.

AMC 2021 January- August CHART

By January 4, 2021, AMC stock had declined to about $2.00. The reasons: Theaters mainly remained closed, and there was concern the company would declare bankruptcy.

AMC HITS IRRATIONAL HIGH POINT- DRIVEN BY WALLSTREETBETS AND OTHERS

June 2, 2021, AMC hits ~$73.00!

The above chart demonstrates the power of social media. AMC’s slow reopening of its movie theaters cannot justify an all-time high price of $73. AMC is NOT a more valuable company today, with fewer butts in seats, versus 2018.

VERY UNLUCKY traders purchased right at an all-time high of ~$73.00. As of August 13, 2021, AMC was trading at ~$34.00. Those unlucky traders who bought and held this stock are down ~53%.

Now imagine if you went all in and gambled the 401K money that took you ten years to accumulate in your excitement. This is the danger with meme stocks.

WHO SHOULD TRADE MEME STOCKS – TRADERS!

Any of you are free to buy meme stocks. I am an investor and seldom trade for short periods, so I typically do not trade meme stocks. I did, however, make four short, small trades on AMC. I made a YUGEEEE $667.00 profit and realized this trade was NOT for me. Also, I traded small enough amounts; it was insignificant to my portfolio value.

A Traders goal is to generate returns that outperform buy-and-hold investors. Most investors, including me, are shooting for a 10% to 20% annual return. Traders are seeking that return and more in days!

Traders generally fall into one of four categories:

Position Trader: Positions held months to years.
Swing Trader: Positions held days to weeks.
Day Trader: Positions held throughout the day only with no overnight positions.
Scalp Trader: Positions held for seconds to minutes with no overnight positions.

INVESTORS

Anyone who has a 401(k) or an IRA is investing. The goal, grow a retirement account over decades, so the weekly ups and downs are less significant than consistent growth over an extended period.

Most investors have a diversified basket of stocks, mutual funds, ETF’s bonds, real estate holdings, etc. Their investments are typically held for years, or even decades, taking advantage of interest, dividends, appreciation, compounding (one of my all-time favorites), stock splits, etc., along the way.

Markets inevitably fluctuate; investors will “ride out” the downtrends with the expectation that prices will rebound, and any losses eventually will be recovered. Investors typically are more concerned with the below Stock Evaluation Factors, versus social media post.

CONCLUSION

Other drivers of Meme stocks

The U.S. government flooded the nation with cash during the pandemic. Many young people took this cash not needed and traded it in the stock market and cryptocurrencies.
This excess cash supported the higher stock prices and fueled further investment speculation.
Retail investors (ordinary folk) were flush in cash because they had cut their spending while maintaining their income. In addition, some had received $1,200 checks courtesy of the Cares Act.
Robinhood Markets {HOOD}- Introduced millions of young investors to the stock market. I have a Robinhood account and occasionally look at what younger traders are buying.

As for the popularity that accompanies meme stocks, it fluctuates. Just as much as there can be highs during times of high demand, so too can there be lows and massive losses!

FUN MEMES

THIS IS JUST RUDE! DUH- READ MY BRILLIANT RESUME!

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ABOUT ME

I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an N.C. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.

I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.

DISCLAIMER

I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and am happy to share my finance and investment lessons. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss.

Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.

I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.

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