Are Meme Stocks Worth Investing In?

Hazelle

Today, the meme stocks are at it again, making double digits of gains or losses. If you are new to investing, you might be wondering if meme stocks are worth your time. (and money)

What are Meme stocks?

A meme stock refers to the shares of a company that have gained a cult-like following online or through social media platforms. These online communities may go on to build hype through a stock on platforms like Reddit to gain more traction and followers. It is believed that with coordinated efforts, the prices of such shares can be greatly influenced.

Most of the meme stocks do not check off to be fundamentally sound companies and their prices increase only as a result of irrational exuberance. They are not supported by fundamentals. What this means is that when the music finally stops, investors can be caught and be in for some pain.

What drives the Meme stocks?

What drives such meme stocks are pure investor psychology which can be totally irrational at times. When dealing with such stocks, valuation, news stories or earnings are pretty much irrelevant or useless.

Such stocks are for getting in and then getting out when the getting is still good. Eventually it will collapse because the only way for the price to keep increasing means that a greater fool keeps coming along. But eventually when the last fool becomes more fearful than greedy, the supposedly diamond hands will start giving way and it will crumble downwards.

Some parts of the stock market are like a casino. Remember that the stock market is for us to do investing, not to do drama. Learn to never be enticed with the gains that you see from such stocks.

Staying rational when others are not

It never is easy to avoid the next shiny metal that everyone else is chasing after. The market was never meant to let the majority of the people do well. Investing is about doing well sustainably by picking the right stocks for the long haul. Meme stocks are at best a quick game of speculation for traders which will tend to limit their risk exposure by having stop losses. If you are an investor today, play the game that an investor should and not dabble on meme stocks with unsustainable returns.

About Hazelle

Chief trainer of The Moneyball Investors Playbook program and founder of The Joyful Investors, a financial education firm that seeks to help avid investors learn to invest better and make the journey a joyful one. I graduated with a first class honors in Bachelor of Accountancy from Nanyang Technological University (NTU) and started my auditing career in one of the Big Four. I believe that once we know how to build our wealth sustainably, we can then live our best lives ever.

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