My meme-stock fiasco

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I like money as much as anybody, and I’m not too pure to chase quick cash, if the opportunity seems plausible. So in 2021, I decided to dabble in the meme-stock craze that was upending Wall Street and making some gutsy day-traders rich.

Gaming retailer GameStop (GME) was the first meme stock, with trader Keith Gill first making the case for why the stock could skyrocket in August of 2020, on the Reddit channel WallStreetBets. Almost nobody noticed Gill’s pitch until the stock did, in fact, blast off five months later. Part of Gill’s strategy was looking for beaten-down stocks with high levels of short interest and bet on a “short squeeze” that could trigger an exponential rise in the stock price.

It happened. Before Gill’s pitch, GME traded at around $1. It drifted up slowly toward the end of 2020 and then went crazy, peaking at a closing price of $87 on January 27, 2021. More remarkable than the gain was the fact that it appeared to have nothing to do with GME’s financial performance, which was dismal. Instead, ordinary retail investors organizing on social media seem to have sent the price soaring simply by swarming into the stock and creating a surge in demand.

Movie-chain AMC (AMC) came next. Right around the time GME peaked, AMC’s stock started to reverse a four-year decline and get frothy. The stock jumped from a closing low of $1.98 in early January of 2021 to nearly $20 just three weeks later. It wobbled for awhile, then exploded, peaking at $64 on June 2, 2021. The gradual end of the COVID pandemic might have been bullish for the stock, since people would start going to the movies again. But that didn’t explain a 31-fold ascent in the stock price. AMC was still a giant money-loser, with no near-term prospects for turning a profit. Again, a throng of crowdsourced buyers seemed to have driven the surge.

The Reddit logo is seen on a smartphone in front of a displayed Wall Street Bets logo in this illustration taken January 28, 2021. REUTERS/Dado Ruvic/Illustration
The Reddit logo is seen on a smartphone in front of a displayed Wall Street Bets logo in this illustration taken January 28, 2021. REUTERS/Dado Ruvic/Illustration · Dado Ruvic / reuters

[Did you lose money on meme stocks? We'd love to hear your story.]

This is around the time I got interested. I’m not as dumb as I might seem, and I was completely aware that meme stocks could plunge as fast as they soared. In fact, I expected that. But people were also making real money in these bubble stocks, if they knew when to sell. Unlike some Bahamian crypto token, the stratospheric prices of GME and AMC were real prices somebody was willing to pay in real dollars you could put in the bank and spend.

I was willing to experiment and see what happened. One thing I’ve discovered as an investor is that it’s psychologically easier to buy stocks than to sell them. Once a stock is down by 20% or 30%, your primeval bargain-hunting impulses kick in, making you comfortable buying. Stocks usually go up in the long term, so odds are the market will someday justify your buy decision, if only by default. But if the value of a stock you hold has gone up, it can be hard to sell and take profits if you might be forfeiting even bigger profits in the future. If you’ve lost money on a stock it can be even harder to sell, since locking in those losses is an admission of failure.