Jaime Rogozinski, the person who founded “WallStreetBets,” the Reddit forum that has been making waves in the financial world since last year, says that meme stocks are here to stay. Rogozinski has no current role in running WallStreetBets, but his assertion stands against the opinion most traditional investors have of meme stocks — that they are just a passing phase.
The logic behind this statement is that when the group has taken an interest in a company, either because institutional investors and hedge funds are betting against it or systematically ignoring it, there isn’t anything the company can do. If it’s not a regulatory issue (insider trading), a company would have no sway over stock volatility and activity instigated by an online investor group.
Should you buy meme stocks?
The answer is both yes and no, and it mostly depends upon your investment approach. If you are a long-term investor and you don’t actively manage/modify your portfolio on a day-to-day basis, you might not have the trader reflexes (nor the time) to take advantage of the short squeezes these meme stocks offer. The risk they pose might also be beyond your appetite.
However, if you are glued to your phone or trading screen, actively follow the discussions on the WallStreetBets, and always have access to enough disposable liquidity that allows you to fund these lucrative albeit risky investments, meme stocks might be good for you.
But that covers a pronounced minority and might be better suited for individuals that are active traders and not occasional investors. But even if relatively few investors focus on them, Meme stocks might not be going away anytime soon. The precedent (even though it’s a radically different asset) has already been set by cryptocurrencies.
Other risky investments
If you have the requisite risk appetite, you may consider betting on phenomena and trends, while short term, are still spread out over a longer period of time compared to meme stocks. Take Score Media and Gaming (TSXV:SCR)(NASDAQ:SCR) as an example.
If you had bought into the company when it hit rock bottom, hoping you’d take advantage of the recovery growth (a very plausible scenario), you could have grown your capital by over 1,600% by February 2021, when the stock peaked. In this scenario, the surge that you needed to take advantage of lasted days instead of hours, and you would have had ample chance to cash out on top.
The stock has come down a long way from its yearly peak, but it’s still up 789% from its crash valuation. That’s better than what most meme stocks might help you with.
Foolish takeaway
The meme stocks aren’t going away, but that doesn’t mean institutional investors and hedge funds — i.e., entities this phenomenon directly hits — won’t come up with strategies to minimize the impact. And if more investors start to lose money by following the meme stocks, the flow of capital that’s keeping this phenomenon alive might start thinning.
