The rise (and fall) of meme investing
With one random tweet this week from Roaring Kitty (allegedly) we were teleported back to peak 2021. If you were around back then, you might remember what it was like. Money was pouring into the market, stocks were at crazy valuations, and any company that had anything to do with staying home was at prices never to be seen again.
Investing was so easy back then. You bought something and it went up…at least for a while.
A simple tweet of only this image caused GME and AMC to go up almost 100% in a single day.
One of my criticisms of the movie Dumb Money was that it romanticized the mindset of investing to “stick it to the hedge funds” when in reality the average investor who followed the crowd likely got wrecked and ended up worse off than when they started.
Well, we’re back at it in 2024 apparently.
On May 14th, GameStop (GME) started the day around $30 and got up to $55 at one point, ending around $42. Pretty amazing right? Well over the next 2 days it would proceed to lose about 50% of it’s value, ending the day of May 16th at under $22. That was over a 25% loss from where it started the week. As of this writing on May 17th, it’s still dropping. Pretty brutal for anyone who kept holding.
Still dropping as of this writing on May 17th
So what does this all mean?
First, this is honestly one of the reasons why I started my YouTube channel. There’s so much “buy the hype” type investing content out there that is misleading for folks who really want to learn the basics of investing in individual stocks.
Or even just to know that there are basics to investing that can help build long-term sustained wealth. The funny part is that the basics aren’t even all that difficult. It’s not really about knowledge or intelligence, it’s mostly about having a plan and staying disciplined.
Unfortunately some of us are never actually told this, and we assume we have to attach ourselves to the latest fad to make money. But the continued popularity of meme investing shows the power of simply wanting to be part of something that you can easily understand and identify with.
Humans naturally want to belong. We want to be part of a community of like-minded people who share similar beliefs. Religion and politics are the two most obvious examples of this. We align our beliefs and values to something and it becomes a strong part of our identity and how we live. Now imagine when someone ties one of those beliefs to something that can also make you rich?
Tell me where to sign up, right? This is the allure of meme investing.
Wall Street Bets was part investing analysis, part cultural movement, part just having fun with memes. How can someone distinguish what’s what as an investor?
I’ve seen a ton of comments online about how the people buying Gamestop and AMC are “gamblers” and not “investors” and all this. I don’t like judging what people do without context. I have no problem with someone going to Vegas and enjoying themselves, why would I care if someone chooses to gamble in the market? I don’t. As long as they understand what they’re doing and the risk that they’re taking.
This to me is where the real issue is. They simply may not know and are being led astray by a great marketing message of “let’s stick it to the hedge funds because they’re evil!”
Telling someone “if you constantly do this thing for 30 years, you’ll have a nice retirement and get rich slowly” just doesn’t have the same ring to it. Most people haven’t done anything for 30 years straight, let alone invested their money.
Compare that to the message of “this is a revolution and we’re all going to be rich by doing the right thing” and you can see why that’s more effective in getting people to take action.
Me checking my CAT holding from Nov 2023 to Mar 2024
The challenge with investing your money because of a belief or movement is that you will always be up against people who are simply investing their money to make money. This is why scammers and pump-and-dump schemes have existed basically all throughout history. You play on people’s beliefs and relieve them of their hard earned cash.
The only solution for us as individuals is to have a solid plan in place for ourselves that allows us to sleep well at night. We don’t want our financial security to be dependent on the latest hot thing going up 1000%.
The absolute easiest plan to get started can be these 3 simple steps:
Invest the bulk of your money in basic index funds, especially in your retirement accounts that auto invest every paycheck
Put a smaller portion aside to invest in individual stocks if you want to. Or even more risky investments if it interests you
Keep working on increasing your income so you can invest more over time
The goal isn’t to tell you “never invest in a meme stock.” It may not be my thing, but if you want to, that’s totally up to you.
The goal is for you to have a system in place where spending some money on a meme stock won’t negatively impact your life. Or maybe it’s a vacation. Or maybe it’s a small business. Whatever you want to do with your money, is up to you.
Just don’t put your financial future solely in the hands of an internet cat.
Quick Thoughts
Warren Buffett’s “secret stock” ended up being Chubb insurance (CB). My initial thought when skimming the fundamentals was “makes sense.” We know how much Buffett loves insurance companies, Chubb is a high quality one, and their fundamentals looked pretty good.
Nvidia (NVDA) reports earnings next week, which I talked about in my video this week. But since their last earnings report I have started my position and it has become my largest holding. I’m fully aware that how their earnings go will likely decide how my portfolio performs for the month. This is why concentration can be risky and you should only do it if you know and understand the risks!
I realize there’s been a lack of “stock analysis” in the newsletters lately, I will be getting back to that very soon.
If you’ve read this far, I have a favor to ask. I would love some feedback if you have a few minutes to spare. What type of things would you like seeing more of on my YouTube channel? Or in this newsletter? Reply to this email and let me know! Thanks!
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Have a wonderful week, and I’ll see you next Sunday!
Portfolio Updates for the Week
No updates this week. 🙂
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