For those that thought meme-stock mania was dead, were met with a sudden and unexpected return. You may remember names like Game Stop, AMC, and Blackberry from early 2021. At that time, we were seeing their stock prices surge in value over short periods of time. Much of this can be attributed to retail investors participating in Reddit message boards like “wallstreetbets”.
Most recently, in late July 2022, the price of Bed Bath and Beyond (“BBBY”) hovered around $5/share but by mid-August was trading close to $30/share (an increase of just under 500%). The details of the sudden increase were almost identical to that of the 2021 meme-stocks – reddit board members start discussing a stock (typically a heavily-shorted one); interest increases, as well as demand, driving the price up; more and more investors buy; short-sellers start covering their positions; and then it peaks. Shortly after, the price falls as investors dump their positions, hopefully at a profit.
The excitement of achieving sky-rocketing returns in short periods of time is so enticing, but it can fail miserably. Read the attached article by Dimensional Fund Advisors to reveal how unlikely it is to be on the winning side of meme-stocks and why your long-term investment philosophy should avoid it altogether.
