Meme stocks, like cicadas and Michael Myers, appear impervious to death.
Take Clover Health (CLOV). The Franklin, Tennessee-based healthcare tech company came into existence in the middle of last year’s SPAC (special purchase acquisition company) boom, propelled by famous venture capitalist Chamath Palihapitiya and spurred on by eager individual investors on Reddit’s r/WallStreetBets chat group.
The stock soared to nearly $18 per share around the height of the GameStop (GME) meme-inspired bonanza before dropping like a rock after research firm Hindenburg issued an acidic report in February that said Clover Heath had a “broken business.” Clover would ultimately announce that it was under investigation by the Securities and Exchange Commission (SEC), causing the stock to ultimately fall to less than $7 per share as of the middle of May without any sign of a quick rebound.
Until the great populist investing horde struck back.
The Meme Stocks Are Back
Clover Health gained almost 33% on June 7 and is up nearly 60% over the past week, as of this writing. Meanwhile, shares of AMC (AMC) are likewise going gangbusters, rising more than 400% over the past month, which ultimately resulted in the struggling-in-real-life-but-not-in-virtual-spaces theater chain selling new shares to take in $800 million in cash.
Other meme stocks, such as Blackberry (BB) and the O.G. GameStop, have seen their prices rise in recent days, seemingly only on interest from individual investors eager to Make Stonks Great Again.
And just like last time with GameStop, experienced Wall Street hands are warning investors against getting wrapped up in the fervor.
“There is no fundamental reason to be buying shares of AMC Entertainment,” said David Trainer, chief executive of investment research firm New Constructs. “We think [its] stock is worth $0 per share, given its weak earnings, dilution from recent stock offerings and mountain of debt.”
It seems as if this tête-à-tête (enthusiastic speculators with a few extra bucks to spare buying random companies that were more successful a decade ago only to receive admonitions from more experienced money managers frustrated by the irrationality of it all) will continue throughout 2021.
Get Ready for the Weird
In a way, the prolonged meme battles makes sense given how strange the rest of the economy is faring.
It was thought that if President Joe Biden could put thousands of dollars into the hands of average Americans through his massive relief bill in March, and if the vaccines proved effective and people actually took them, and if state governors lifted social distancing restrictions, the economy would come back soaring.
Instead the economy has experienced consecutive terrible-to-meh jobs reports, resulting in fewer people in the labor force in May than in April. Consumers, while flush with cash, are suddenly worried about spiking inflation limiting their purchasing power. And while it’s great (for homeowners) that home prices are through the roof, it’s not particularly helpful if you can’t find an affordable home to move into once you sell.
The Federal Reserve has said it is willing to accept inflation rates higher than its 2% target as it tries to use an easy money policy to help millions of Americans get back to work. But low interest rates even as many sectors of the economy are burning hot have helped spur interest in riskier trading, like meme stocks.
What You Should Do About Meme Stocks
Unless digging into the threads of r/WallStreetBets in search of the new new thing is your jam, you should try to tune out all of these shenanigans.
The economy needs to work through these growing pains as it fully reopens. Policymakers at the Fed and lawmakers on the Hill and state capitals need to experiment with the right incentives to get America back to work. And no one, at least in recent memory, has done stuff like this before, so it may take some time to get things right.
Therefore, it’s not terribly surprising that bizarre events are happening with more frequency. The key is to keep to your long-term investing plan, which generally includes regular investments into slow-but-steady index funds, so you can enjoy your life when things are more normal. And if you must invest your dollars in the latest Reddit superstock, make sure it’s with money you can afford to lose.