Since the beginning of July, GameStop is up 26%, AMC is up 87% and Bed Bath & Beyond is up 111%. It should be noted that the S&P rose “only” 11%. So what explanation is there?
Let us remember that last year this type of action was promoted in the famous WallStreetBets forum on Reddit. There, retail investors agreed to go out and buy them, without many fundamentals behind it.
What was the goal? Punish large investment funds that bet against these companies. These funds, beginning to suffer considerable losses, were forced to close their positions. How did they close them? Buying the shares, to stop betting against. And that generated a greater demand and, as a consequence, an escalation in prices.
This situation occurred again in recent weeks, fueled by the famous Reddit forum. That explains the great performance that these types of companies had.
In addition to this specific phenomenon, it is worth asking ourselves if they are solid companies. Absolutely not.
Let’s see your losses during 2020, 2021 and the accumulated losses of this year:
These companies, called “meme”, are a machine to lose money. They have no fundamental reason to have good prospects.
However, the only thing that makes you gain or lose money is what the price of its shares does. Regardless of whether they are good or bad, their price is governed by supply and demand.
Then, Is it a good idea to invest in them? No. As a general rule no. As they are highly volatile stocks that move without fundamentals, price swings are very dangerous for those who buy them. Can you keep going up? Yes, clearly, but it’s a scam. Will someone make a lot of money? Surely too. It is part of this game.
The only valid reason for someone who wants to invest in these shares would be to allocate a very insignificant portion of their capital, with the aim of obtaining extraordinary returns. You have to know that the risk is enormous and that it is betting on a “meme” action.
Buying GameStop, AMC or Bed Bath & Beyond is not that different from going to the casino to play roulette. Can it go well? Sure, although it is not a lasting method. Therefore, the general recommendation is not to get involved in this type of action. To be careful.
To finish, I want to invite you to download for free a report that I prepared with three simple secrets to discover winning actions. I honestly think it will be very useful for you to be able to analyze companies with potential. You can download it at this link: Financial Letter – actions.