The investing world has seen more changes over the past five years than the previous 50 years before it. When you look at the evolution of the investing landscape, it is astounding the variety of different ways one can invest their money today. The first ETF wasn’t introduced until 1993, and that was considered revolutionary. Fast forward 30 years, and anyone with $5 can invest in the newest robo-advisor, art, wine, digital assets, litigation funding, NFT’s – the list goes on. Some of these new investment strategies, like Decentralized Finance (DEFI) are here to stay, but one new investment strategy has taken Wall Street for a wild ride this year and has garnered attention of a lot of potential regulation. Of course, I’m talking about investing in meme stocks.
A meme stock, quite like a meme itself, is a stock that has gone viral online. It is a stock whose price is not driven by any close relation to its intrinsic value but, rather, by peer-to-peer engagement on social media. Users on social media forums like Reddit will ban together to buy a low-priced stock en masse to slowly start to push the stock price up.
Then these social media users will start to spread the buzz about the stock and upward momentum on the stock will continue until main-stream, retail investors take notice. Once this happens, the phenomenon of FOMO (Fear of Missing Out) will occur and retail investors and even institutions will jump in to take advantage of the momentum.
After a peak, the social media investors who started the fad, will begin to sell off at huge gains.
There is a lot of controversy surrounding Meme stocks for varying reasons. Many people acknowledge that Meme stocks are a perfect example of the flaws of the stock market. The price of stocks like Gamestop, BlackBerry, or AMC don’t truly reflect the value of their business and a bunch of social media users can artificially inflate a stock simply buying trading in large volume of its shares.
The other side of the coin is that is exactly what has been happening on Wall Street for years. Hedge Funds have purchased massive amounts of shares of a stock to drive momentum, and then turned around and sold it to retail investors.
This entirely depends on your level of risk and knowledge of investing. If you are new to investing, Meme stocks should not be your first foray into the investing world. Meme stocks are highly speculative and driven by nothing more than social media rallying cries.
Take a close look at GameStop this year:
As you can see, in the beginning of the year, it went from trading near $10 to $350 in matter of weeks. Then just as soon as it shot up, it fell back to earth.
That is a crazy ride for any investor, let alone a new one who is simply trying to catch a wave for the Fear of Missing Out. More likely than not, you are going to get burned on this type of investment.
Now, this is not to say Meme Stock Investing is not a legit strategy. Certainly, quite a bit of money can be made in short amount of time, especially if you are experienced with options trading. However, for many new investors this should not be their first, and certainly not their only method of investing.
Much like cryptocurrency or any other speculative investment, you should only invest with an amount you feel comfortable losing.
As many amazing stories that have come out of people making millions of dollars of Meme stock investing, there is an equal amount of people who have gone bankrupt. This is certainly not a place you want to find yourself in.
Again, if you are new to investing, you should not spend all of your time and money chasing Meme stocks.
If you are interested in investing, take your time to make sure you are building a solid foundation of education and understanding before diving in.
The best place to start, is mapping your financial goals. Understanding your short, medium-term, and long-term financial goals will ensure that you are always investing with a plan. If you don’t know what your goals are, visit our Financial Independence Calculator. Our tool will allow you to map out your financial timeline, see the path you are currently on, and then allow you to customize your optimal path to achieving your goals.
The next step is to understand what strategies fit your investor’s profile and when is the best time to use them. You might want a more aggressive strategy for a short-term goal like a vacation. Investing in growth stocks that have a bit more risk to them could be a solid approach. Or you may like the Warren Buffett approach, and using a value investing strategy, only investing when a quality company can be had a discount.
Whatever strategy fits your financial goals, make sure you are taking the time to understand how it impacts your livelihood. It takes time to understand the investing world but taking extra time in the beginning will pay off in the long run.
Well, a great way to invest in Meme Stocks while eliminating a ton (not all) but a lot of risk is to invest in a brand-new Meme Stock ETF.
Tuttle Capital Management has launched FOMO ETF. This is the first ETF that lets investors take part in the Meme Stock craze without trying to chase down a single stock.
The ETF is made up of 101 different holdings, according to its website. Such notable companies included are, GameStop, Keurig, Dr. Pepper and AMC.