Meme stocks are making a comeback as the overall stock market ends the first quarter on a strong note.
While the meme stock frenzy hasn't reached the intensity of 2021, when GameStop (GME) and AMC (AMC) stocks soared to new heights, the meme phenomenon continues to focus on a few notable stocks. There is.
For example, recent trading has seen increased interest in GameStop (GME), in part due to new additions to the market via IPOs, such as Reddit (RDDT) and Trump Media & Technology Group (DJT). There is.
Reddit's stock price soared more than 90% in the first three days of trading to more than $65 per share, well above its IPO price of $34 per share. However, the social networking platform's stock price has remained volatile, falling to around $49 as of Thursday's close.
Trump Media also initially rose as much as 50% on its first day of trading, before falling in value later in the week and ending Thursday at around $62 a share.
“The momentum has been there since November, but the stocks that are driving the momentum are “It's a stock that has generally performed well.” “More and more people are chasing stocks simply because they're going up, rather than for any fundamental reason. To me, that's indicative of froth.”
Brian Jacobsen of Annex Wealth Management told Yahoo Finance Live that investors' interest in meme stocks can be directly tied to FOMO, or the fear of missing out. Told.
“They're trying to figure out the next thing to look at, and they're starting to pile on after that,” Jacobsen said. “It can obviously work, but it can also end up being a failure, especially if you don't remember the names quickly enough.”
Three characteristics of meme stocks
But what exactly are meme stocks?
Sosnick explained that there are three main criteria for evaluating whether a stock falls into that category.
Sosnick said the first indicator for meme stocks is “quasi-religious fervor.”
“There's a difference between being enthusiastic about a stock and just being excited,” Sosnick said. “Think about how real apes were at AMC and how real believers were at GameStop in the early days. Certainly, the former president's base, which I think helped move DJT's stock price. The same can be said about.”
The second criterion is disregard for basics. Traditionally, investors look for opportunities that provide financial returns over long periods of time, particularly those that have the potential to outperform the market over the same period of time.
On the other hand, many meme stock investors have a much shorter time horizon in mind, as they consider selling their speculative assets quickly if the price soars and they are able to make a large profit. I am.
Sosnick added, “If you believe in trust in stocks and you have a non-analytical view of stocks, you can ignore the fundamentals,” adding that stocks that trade on momentum are “It may seem expensive to anyone,” he said. Traditional indicators. ”
Finally, Sosnick said investors should be wary of high short-term interest rates.
Short selling refers to a bet an investor makes that a stock's price will fall rather than rise. In the case of DJT, short interest took the lead, but remains at a high level of 11%. The average short interest in public companies is usually 3% to 4%, but he can reach 40% if investors become more pessimistic.
Essentially, according to Sosnick's definition, meme stocks are willing to take on more risk and ignore some traditional investment strategies, especially in search of a chance at higher returns in the short term. It takes advantage of the intense passion of individual investors.
Public COO Stephen Sykes largely agreed, but doesn't think it's that simple. Sykes argued that meme stocks are attractive to a wide range of investors with different goals and strategies, not just those looking for quick profits.
“There are long-term buy-and-hold investors, and there are traders who are looking to take advantage of market volatility and momentum,” Sykes said. “They see an opportunity here rather than the pseudo-religious fervor of previous eras.”
As for why meme stocks are gaining traction again, Sykes told Yahoo Finance that it's likely due to investors becoming more familiar with companies' products and brands, as well as increased market volatility. he said.
And when asked where investors could find the next target for “meme mania,” Jacobsen said the market will shift to the small-cap space and underperforming sectors such as industrials, manufacturing and utilities. He pointed out that there is a possibility.
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