Investors in meme stocks are looking to cash in again
NEW YORK — After feeling the thrill of victory early this year by singlehandedly causing GameStop’s stock to soar — only to get crushed when it quickly crashed back to earth — armies of smaller-pocketed and novice investors are back for more.
These undaunted investors have resuscitated GameStop shares back above $300, up from $40 in February after plunging from a peak of $347. They’re also hauling new stocks onto the bandwagon they say is heading for the moon, including the lesser-known health insurance company Clover Health Investments.
This second wave of leaps for meme stocks are just as staggering — the movie theater chain AMC Entertainment soared to $62 last week from $2 early this year. On Thursday, it closed at $42.81.
And once again Wall Street is calling the gains illogical.
Many professionals had predicted the phenomenon of regular, small-fry investors piling into a stock en masse and sending it incredibly higher would fizzle out, particularly after they lost money.
Instead, the frenzy shows how powerful these investors remain, at least for now. They’re armed with social media where they can convince others to champion the same stocks. They also have zero-fee trading apps that allow many to buy stock options, which can offer bigger gains at a smaller upfront cost than buying a share of stock, in exchange for potentially bigger percentage losses.
“They’ll do surprising things if given the tools,” said Hossein Azari, CEO of cmorq, a company that helps customers get into cryptocurrencies and advocates
for a new world of “decentralized finance.”
Azari sees it all stemming from people feeling left out as they watched wealthy investors and firms suck up the majority of the economy’s gains in recent years. Now they see a way to get some for themselves.
“They are not out there trying to prove anything,” he said. “They just want to kind of materialize the American dream for themselves.”
Some of the meme-stock buyers believe in the financial futures of the companies they’re backing. Others say on social media posts that they’re merely looking to cash in on whatever the next hot stock is. Most say that as long as other like-minded investors stick together and hold the stock, they’ll protect each other and the stock’s price.
Malcolm Ethridge, a financial adviser with CIC Wealth outside Washington, said a range of his clients want to talk about meme stocks, as well as cryptocurrencies. Ethridge also says it’s not only younger investors pushing
up meme stocks — he’s gotten just as many requests from his clients who are retirees.
“I think in most cases, though, they really just wanted a professional to tell them why it wasn’t a good idea to get involved just so that they could stop feeling like they were missing out,” he said.
This resurgence for meme stocks is a little different from the earlier supernova. For one, it hasn’t dragged down the broader stock market. Back in January, the mania helped knock down the S&P 500 to its worst day in months. That was a result of fears that some hedge funds would have to sell big, unrelated stocks to raise cash to cover losses they were taking after betting that GameStop would fall.
The buying activity this time around also seems less fervent. Trading in call options, which can give a buyer the right to buy 100 shares of stock at a set price at a later date, surged to a two-month high recently.
But it’s still below the heights set in January.