The allure of meme stocks is developing into what appears to be an evolving digital cult system where like-minded people imitate each other’s behavior either for an ideology, or profits, or just for entertainment. Millennials could already be disrupting the world of investing with meme stocks in their gunsight.
Let’s zero-in on what makes a meme stock
As Darren Winters explains, these are stocks experiencing significant shifts in valuations, which can either be driven by Reddit activists’ traders, a global mass movement rally to a cause, as we recently witnessed with GameStop stock (GME) and AMC Entertainment Holdings, Inc (AMC).
Reddit traders are a collectivized, organized counter-culture global movement, a million-plus army strong with a vision to smash the financial elite who have profited from rigged markets.
These traders’ activists identify meme stocks by obtaining a publicly available list of what the hedge funds are shorting
They then ambush the position by mounting a coordinated massive bull run, thereby squeezing the hedge funds out of their short positions and leaving the suits with billions in losses.
A bear squeeze on meme stocks triggered by a bull raid is an old strategy, but what is different this time is that the battleground has moved into cyberspace Reddit traders communicate their strategies on online investing communities such as Reddit, StockTwits, and Wall Street Bets. It is such a fast-evolving cult movement that they are even inventing a global language of symbols and new acronyms as they discuss meme stocks. So, your typical Reddit activist trader is educated, smart millennial, underemployed, and pissed off with the system.
Meme stocks have become a buzzword in certain investing circles, they tend to attract Reddit traders, and the pump and dump get rich crowd
Darren Winters puts it another way, meme stocks are extremely volatile, and for investors who can differentiate the bubble meme stocks from the rising stars, meme stocks can turbocharge investors’ returns.
So how can investors avoid the bubble meme stocks and put their money on the winners?
Focus on the company’s fundamentals, understand what is value investing.
These are stocks that are deemed cheap with a lot of profit potential. In other words, these are stocks with low price to earnings ratios or low price to book ratios.
Meme stocks are the disruptors
They are the companies spearheading the fourth revolution and part of a megatrend. So, meme stocks would fall into the digitalization, and internet of everything, self-driving automation, cyber cloud security, blockchain, fintech and, robotization, AI, and the fusion of humans and machines, humanoids.
Investing in volatile meme stocks can be extremely rewarding and also risky
The risk to capital could come from jumping on the Reddit traders’ bandwagon. If ideology is driving capital flows and no fundamentals, then you could be investing in a bubble.
We believe that asset price value is based on fundamentals and not a system of beliefs. But don’t say that to the crypto tribe because they will be up in arms.
Identifying a bottom with technical analysis is a good way to build a position in quality meme stocks.
Figure out why you are playing the game, is it for entertainment, are you backing a cause, or do you want to be part of a movement, or do you see winning as making profits?
What makes you tick? You will need to know the answer before deciding to play with meme stocks.