- It can be tempting to follow the crowd as “meme stocks” like AMC and GameStop surge.
- But experts say you should only risk money you’re prepared to lose.
Shares of AMC Entertainment and GameStop have surged once again in a new “meme stock” rally triggered by social media.
A social media account named “Roaring Kitty” posted an image for the first time in three years, prompting the trading frenzy. The man purportedly behind the Roaring Kitty account helped lead a meme stock frenzy between 2020 and 2021.
“This is now like watching a sitcom on repeat,” said Dan Egan, vice president of behavioral finance and investing at Betterment.
In some ways, this time differs from when the stocks surged during the Covid-19 lockdown.
Egan pointed out that this time people aren’t stuck at home bored with stimulus check money in their bank accounts that’s hardly earning any interest.
Roaring Kitty’s first post since 2021 is “ambiguous and kind of interpretable in some way,” he said.
This latest buying frenzy can tempt people to want to be part of a perceived movement, Egan said.
Roaring Kitty gives the impression that a guy is in his basement trading stocks instead of big investors like hedge funds and investment banks, he said.
“We want to be on the side of the underdog and supporting him,” Egan said.
‘It’s like going to Las Vegas’
Committing money to meme stocks comes with risks. Egan said that what may start as an edgy, niche community of investors can turn into a lot of upward pressure on the stock as more investors join in.
Betting on these stocks is a form of gambling, said Ted Jenkin, a certified financial planner and the CEO and founder of oXYGen Financial, a financial advisory and wealth management firm based in Atlanta.
“It’s like going to Las Vegas,” said Jenkin, who is also a member of the CNBC FA Council. “Only play with money that you plan to lose.”
Jenkin said he would tell his clients to be very cautious.
But he told CNBC that he bet on the meme stock frenzy himself — investing $75,000 in AMC on Monday and cashing out eight hours later after he doubled his money.
“You start to see these runs, I mean why not?” Jenkin said. “It’s stupid money.”
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It can be difficult to decide when the right time to sell is, Egan noted.
Investors who weren’t able to profitably sell the stocks in the past may be holding on for a chance to do so now, he said.
Watching the action from the sidelines can be entertaining and a risk-free approach, Egan said.
For those who do decide to bet, it’s best to think of it like a hobby and not risk funds you will need.
“Just don’t bet any money you can’t afford to lose,” Egan said.
