My meme stock fiasco

I love money as much as anyone else, and I’m not too pure to chase quick cash, if the opportunity seems plausible. So in 2021, I decided to delve into the meme stock craze that rocked Wall Street and made some gutsy day traders rich.

Gaming retailer GameStop (GME) was the first meme stock, with trader Keith Gill first arguing why the stock would skyrocket in August 2020, on the Reddit channel WallStreetBets. Hardly anyone noticed Gill’s roll until the stock did indeed take off five months later. Part of Gill’s strategy was to look for knocked-down stocks with a high degree of short interest and bet on a “short squeeze” that could cause an exponential rise in the stock price.

It happened. Before Gill’s pitch, GME was trading at around $1. It slowly drifted upward towards the end of 2020 and then went crazy, peaking at a closing price of $87 on January 27, 2021. More notable than the gain was the fact that it seemed to have nothing to do with GME’s financial performance, it was gloomy. Instead, ordinary retail investors organizing on social media seem to have pushed the price up simply by swarming into the stock and creating a surge in demand.

Movie chain AMC (AMC) came next. Right around the time GME peaked, AMC’s stock began to reverse a four-year decline and get frothy. The stock rose from a low of $1.98 in early January 2021 to nearly $20 just three weeks later. It fluctuated for a while and then exploded, peaking at $64 on June 2, 2021. The gradual end to the COVID pandemic may have been bullish for the stock as people would return to the movies. But that didn’t explain a 31-fold increase in stock price. AMC was still a huge money loser, with no near-term prospects of turning a profit. Once again, a mob of crowdsourced buyers seemed to have driven the wave.

The Reddit logo can be seen on a smartphone in front of a displayed Wall Street Bets logo in this illustration, taken on January 28, 2021. REUTERS/Dado Ruvic/Illustration

The Reddit logo can be seen on a smartphone in front of a displayed Wall Street Bets logo in this illustration, taken on January 28, 2021. REUTERS/Dado Ruvic/Illustration

[Did you lose money on meme stocks? We’d love to hear your story.]

This is around the time I got interested. I’m not as stupid as I may seem, and I was fully aware that meme stocks could fall just as fast as they rose. In fact, I expected that. But people also made real money in these bubble stocks, if they knew when to sell. Unlike some Bahamian crypto tokens, GME and AMC stratospheric prices were real prices someone was willing to pay in real dollars that you could put in the bank and spend.

I was willing to experiment and see what happened. One thing I’ve found as an investor is that psychologically it’s easier to buy stocks than it is to sell them. Once a stock is down 20% or 30%, your primal bargain-hunting impulses kick in, allowing you to buy comfortably. Stocks tend to rise in the long run, so chances are the market will one day justify your buying decision, if only by default. But if the value of a stock you own has risen, it can be difficult to sell and take a profit if you potentially forfeit even bigger profits in the future. If you’ve lost money on a stock, it can be even more difficult to sell, since recording those losses is an admission of failure.

I didn’t want to buy GME or AMC since those shares were probably already issued. What could be the next meme stock? I looked at WallStreetBets and everyone seemed to be talking about the old cell phone company, Blackberry (BB). I studied the inventory history. From 2003 to 2008, when the ticker symbol was RIM, Blackberry was a high flyer, and with good reason. The Blackberry phone was a phenomenon in the early days of smartphones, a real product that brought huge profits. Subsequently, iPhone and Android devices effectively killed the Blackberry. The stock had fallen from a peak of $148 in 2008 to a low of just $3 in 2020.

There was a wave of excitement in January 2021, when GME and AMC took off. BB went as high as $25 for one day and then fell back into the $10 range. By the time I looked at it, the shares were around $14.

Was BB the next meme stock? Or is it spent? Bottom to top gains were 633%, based on a bottom of $3 and a top of $25. But that was just for one day. GME was up 8,600% from trough to peak. AMC’s bottom-to-top gain was 3,000%. Both were below their highs, but well above pre-meme levels. Blackberry’s gain of 633%, for just one day, was meager by comparison. It would likely go much higher once the hordes of WallStreetBets started pouring in. This was my big chance.

I was willing to pledge $2,500. If BB became the next GME and I sold at the top, I would bring in over $200,000. If it was the next AMC and I sold at the top, my profit would be a cool $75,000. If it captivated me and I sold in the middle rather than the high end, I’d still have enough money for a new sports car – though maybe used, rather than new. And if BB turns out to be a flop, at least I can write a story about it.

Since you are now reading that same story, you know what happened. In June 2021, I bought 171 shares of Blackberry at $14.60 per share, a total investment of $2,496.60. Blackberry never remembered me once I bought it. Perhaps that short-lived 633% gain was the only meme in it. I bought high, it turned out, and the only way to make money buying high is to sell higher.

I never got a chance to sell higher. A month after I bought BB, it was down 27%. A year after my purchase, BB was down 58%. With 2022 coming to an end, I decided that BB was never going to meme and that I should just admit my folly and cut my losses. I sold all 171 shares for $4.31 each, 70% less than what I paid. My total loss was $1,760.

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My decision to buy Blackberry probably looks like an idiotic mistake. When I told Yahoo Finance stock hawk Brian Sozzi that I was planning to write this story, he screamed, “Dude! Tell me you didn’t buy Blackberry!” So sure, feel free to laugh. But I don’t think it was a mistake. For one thing, I could have wasted a lot more money, including money I needed instead of savings I could afford to lose, as much as I hated losing it. If I took a foolish risk, it was also a measured risk.

Should I have paid more attention to Blackberry basics? No! And if I had, it wouldn’t have mattered if I had. Unlike GME and AMC, Blackberry actually made a small profit in its most recent fiscal year, yet the stock has fallen back into the dungeon it came from. It has always been about trying to profit from a market phenomenon – a speculative bubble – and not discovering unappreciated value.

Is there a big lesson in this? Beat me. The meme moment seems to be over, as many pros predicted. GME is still above pre-meme price, but the curtain falls on AMC and a handful of other mini-memes quickly unmemed. These days, if you visit WallStreetBets looking for stock tips, you’re more likely to find plenty of grumbling about the Tesla and Twitter woes and a gloomy Christmas brought on by investment losses.

I don’t regret trying to make money in a speculative bubble. I knew it was a bubble and I wasn’t buying for the long haul. I bought for the short term, hoping the stock would rise and I could unload it on a schlub that came in later than me. Instead, I turned out to be the schlub. Maybe next time there’s a get-rich-quick scheme I should get in earlier. Or force myself to ignore it.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter @rickjnewman

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