Remember a few months ago when the business world went bonkers over Gamestop?
Well, it’s happening again.
The theater chain and video game seller are going through another climb similar to the one in January. In early 2021, AMC traded at $2 a share. At one point during the first week of June, it exploded to $70. On June 9, it traded at just under $50. Gamestop, too, rose to over $337 on June 8.
Largely, the value of meme stocks comes from social sentiment — the hoopla and virality created by the mostly-young retail investors on r/WallStreetBets who are bent on squeezing short sellers. In other words, retail traders want to push back against the professional investors who have bet big on a handful of companies going bust.
The 10-million-strong army of the meme-stock revolution has hurt hedge funds and remained relevant thanks to the digital savvy of the new-age retail investor.
By leveraging Twitter and Reddit, investors can collectively analyze market trends and strategies online. As if each forum post was a peer-review submission, retail investors can write questions or analyses and wait for comments to roll in from across the globe.
By creating viral posts and memes, traders have figured out how to not only spot trends, but create them. When millions online see the same link or meme shared over and over again, buying (or selling) frenzies become commonplace.
Social media platforms have proved effective for facilitating mass coordination and camaraderie. r/WallStreetBets overflows with nuanced analyses, intelligent discourse and, of course, endlessly shareable memes, many of which get tens of thousands of comments. The result is an enthusiastic internet mob that lends itself to both loyalty as well as group-think.
Social media has disrupted and democratized the investment landscape. Leveraging the reach of the internet can be chalked up as a smart move for retail investors.
But the meme-stock frenzy is not happening in a vacuum. A market that sees frequent, unanticipated surges can make for a weak bond market.
Interest rates have dropped precipitously through 2021 in part because of extreme market volatility. The 1 Month Treasury Rate has continued to lower — and some dips correlate with the spikes in share price for AMC, GME and other meme stocks.
Other aspects of the retail investor culture, too, remain troublesome. Users commonly post “loss porn” on r/WallStreetBets, or screenshots of massive financial losses due to meme-stock investing. Within the meme culture, losing money is applauded as a courageous act of holding the line — dedication to the fight against hedge funds.
This foments a toxic approach to investing: both losses and wins are fine as long as you’re “fighting the good fight.” When investing devolves into an act of following the crowd, some retail investors overextend themselves with money they don’t have.
The loyalty of r/WallStreetBets users may be the downfall of the everyday trader. For retail investors, holding “to the moon” is the only option — and it will likely leave many of the little guys with a debt they cannot afford.