To watch/listen to a quick recap of this week’s article please click here.
If you’ve been watching business news these days you’re likely asking yourself, “What the heck is a Meme Trade?” Well in a nutshell (and that’s truly where it should be), a meme trade is a trade that is the effect of or influenced by social media. Last week we saw another run up in one of those names pushing the stock up 100% in a matter of hours.
That led management to publish a statement saying that the “stock price is trading at levels that do not reflect the current business. Any investor should be prepared to lose all or some of their principal.” Now trading on rumor, inuendo, or what someone else has told you is not new. Day Trading has existed for many decades, and you’ll hear stories of people making fortunes from it. You hear less about those that have lost fortunes, but they’re out there.
Euphoria is what Sir John Templeton tells us is the last leg of a bull market. This is not it, in my humble view. Well, at least not in the mainstream. What we are seeing now is the influence the “new age” media has over us all. Social Media platforms such as Instagram and TikTok are igniting the discussions on blogs like Reddit, and this in turn is spreading to “old school media platforms, like the business channels”. Yes, like it or not, the business channels I watch are now considered old media.
Meme Trades, Crypto, SPACs, Pot Stocks are all the rage presently, and moving in price with such intensity it gains attention. I listen to the talking heads try to explain it, but I’m not sure any of them actually understand it. Here’s my take…
I think at some stage or another, everyone that has had an interest in investing (specifically equities) has dabbled with what I like to call tactical trading, otherwise known as day trading. Whether it be directly buying or selling individual securities or options. I’ve spoken to many of you. I did it myself when I was starting out. How easy is this?? “I buy on an uptick, I’ll sell out at a $1,000 profit, I’ll put a stop order in, I’ll follow the smart money, I’ll do the momentum trade, I’ll do the contrarian trade, I’ll just trade the charts.” Your first few swings at bat produce doubles, triples, maybe a home run or two. Then you hit a cold streak. Could be that work got in the way and you can’t spend the time researching. Could be the President, could be oil prices, could be the trade didn’t go through, or I got blocked by Robinhood. Could be, could be….
These things work till they don’t. Our emotions are such, that a fear of missing out produces more emotion than if we were in it anyway…it’s natural. I want to double my money every month or week or day. But I simply know that the more a price of an assets moves (either up or down), the more risk it has. For those that are looking at these trades, I’m not steering you away from them. I just want you to go into it knowing what the outcomes could be.
I sat with a few of my daughter’s friends this past week and when the discussion of the Meme Trades/Crypto/SPACs and Pot Stocks came up, I could see in their facial expressions the contempt they had for me that I’m on not on board with these as an investment. “The old guy is out of touch, he doesn’t understand the next generation of investors, how commerce will be done in the future, or what will be legal and what wont.”
It’s one thing for a 20 something year old to make an all or nothing investment. They have nothing but time to rebuild. That commodity is not something that a lot of us have.
I am ready to accept a new global currency, I do believe that marijuana will be legal one day across the country and eventually these companies will be able to open a bank account. Until governments regulate and tax it, I’m not ready to consider it. Yes, I’m aware that by the time they are approved that the price may have run. I don’t believe in social media dictating the price of a stock, or blindly investing in Special Purpose Acquisition Vehicles.
If you disagree with me, I’m ok with that. I get it wrong a ton. But in my business when you get it wrong, you want to accept it, fix it, and move on. I’m ok being wrong, I just can’t be really, really wrong.
Although you wouldn’t know it from watching the business news, fundamentals are not dead, and they never will be. Sometimes they just get moved off the front page for a while.
With that, here’s the buy/sell. As always have a great week and don’t hesitate to call.
Mick Graham, CPM®, AIF®
Branch Manager Raymond James
Financial Advisor Melbourne, FL
Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results.