When a group of Reddit users, a popular social media platform, on January the 27th 2021 orchestrated the biggest collective short squeeze on the biggest hedge funds on wall street and bankrupted the likes of hedge funds like Melvin Capital by pumping money into a stock known as a Gamestop that soared 1,700 percent as millions of small investors jointly took on the big guns from wall street, this was the beginning of a revolution. The era of meme stocks has taken the markets by storm and has created a headache for wall street.
Some of the other stocks included the likes of former smartphone giant BlackBerry whose shares went up nearly 280 percent this year. Followed by AMC, the movie theater chain, which surged nearly 840 percent in early 2021. The stocks were performing well till May of this year, but have been on a bumpy ride in the past few weeks as investors booked profits fearing another washout of gains like earlier this year. Most of the meme stocks were left bleeding on Friday, shedding up part of the gains made earlier in the week. All the frenzy surrounding meme stocks are subject to bigger risks due to their high volatility, fear of bulk sell out and liquidations have produced a cloud of doubt over these stocks. Such types of volatility have only been witnessed in the cryptocurrency markets.
Disciplined investors are people with huge capital who spend years studying the markets and business potential before picking stocks and investing in them. They have a good reason to believe that a company that they are choosing to own will produce future value and give handsome returns in the process. But the story is different for the people who are following the herd primarily due to fear of missing out and also to make quick profits with meme stocks, and such people cannot be called investors. This rally can end at the same speeds as it began. That is the nature of meme stocks; they are volatile. And it is always wise to stick to proper fundamental and technical analysis before boarding on top of any stocks.