Meme Reversion

Bob Stowe |

Meme stocks are companies that became popular with online communities such as Reddit. These online forums would try to influence a stock’s price by coordinating their buy and sell activities. Typically, these were stocks of distressed companies with a lot of short sales against the company and not much trading volume. Simply put, these are mostly ‘pump and dump’ schemes that apparently some investors came to believe were good investments.

This is another cautionary tale of investors who delved into something in an attempt to “get-rich-quick”.  While early adopters of meme stocks made out like bandits, most did not earn much for their trouble and, if they still hold the stock, most will have a loss (the stock price is lower than when they purchased it) as there has been a dramatic price decrease on meme stocks. Consider that most speculators only heard of these stocks after their prices had gone up dramatically.  The meme stock movement is reminiscent of the dot com era. That didn’t go well either.

In order to ‘win big’ one must select an individual stock before it goes up and then sell the stock when it is still going up. Keep in mind that when one is in the moment, they will feel like the stock can keep going further up.  Studies have shown that few individual stocks outperform the market over any long period of time. True investors are better off owning a diversified portfolio with hundreds or even thousands of stocks. There are healthier and less frustrating hobbies than chasing stock names that one hears on the news.