Business & Investment

Are DIY investors still interested in meme stocks like AMC and Gamestop?

Boosted by market volatility, mass cheap trading apps and social media frenzy, a new generation of DIY investors has emerged from the pandemic.

It came to mind in January when the Reddit thread r / wallstreetbets skipped and sent so-called meme stocks.

Whether it’s a battle between small investors and Wall Street or a get-rich-quick for others, it has captured the imagination of thousands of young investors.

Gamestop became the face of meme stock enthusiasts in January 2021 after Reddit investors piled up on unloved stocks.

The popularity of Gamestop, which sells shrink-wrapped video games, has declined in recent years as consumers move online.

Last fall, activist investor Ryan Cohen intervened to help the company revive, but other investors and hedge funds weren’t convinced. They took a short position with the retailer.

In January, Cohen joined Gamestop’s board of directors, raising its share price from $ 19.95 to $ 39.12 in just nine days.

An army of novice Reddit traders then flocked to Gamestop, raising its share price to nearly $ 350 after Elon Musk’s “Gamestonk” tweet.

Later, attention was focused on other stocks that had lost popularity, such as cinema chain AMC Entertainment and Nokia.

Investors Still Support Meme Stocks

It seems that the long-term care loss was purchased at the peak of mid-January when the dust settled down.

Gamestop has surged 880% year-to-date, but has fallen nearly 50% from its January highs.

This volatility means that in the worst-case scenario, Gamestop investors could have lost more than two-thirds of their investment in a month.

An analysis by Boring Money reveals that a £ 10,000 stake is worth just £ 3,129.

In the best scenario, investors can see a £ 10,000 investment surge to £ 168,744 if they buy it a month before the price surge and sell it at peak times.

At the time, many experts warned that the Gamestop story would end in tears for the vast majority of investors.

However, meme stock pulls are understandable in the current economic environment.

“Going back to the moon” is attractive when banks and building-and-loans have a small impact on cash savings in a record low interest rate environment, said Myron Jobson of Interactive Investors. It will be strengthened. “

Some investors are still using meme stock. Although r / wallstreetbets has shifted its focus to cannabis stocks in recent months, Gamestop and AMC are still popular options.

Susanna Streeter, Senior Investment and Market Analyst at Hargreaves Landsdown, said:

“There also seems to be a hangover from the story of revenge that took place earlier in the year when Gamestop was one of the targets of the army of retail investors.”

Both companies are among the top 10 most popular stocks traded by Hargreaves Slansdown clients in June and July.

AMC has been the most popular overseas share in the last two months, with Gamestop in second place.

However, net purchases have also declined over the past month, with net purchases of Gamestop shares declining by about 70% by July 19 since its peak in early June, and net purchases of AMC shares by 77%.

Gamestop and AMC are facing a difficult battle

Some investors may be keen to maintain their position at Gamestop and AMC as the economy begins to resume.

Gamestop’s first-quarter earnings were better than expected, saying it had paid off its long-term debt as of May 1, but lost in three of the last four quarters.

“The biggest question investors have to consider is whether Gamestop’s turnaround plan will actually give the business a shelf over the next few years.

“Adopting an online marketplace has only been possible so far,” said Danny Hughson, financial analyst at AJ Bell.

“Gamers are increasingly choosing to download content, and we’ve already heard from streaming giants like Netflix that this is where the next big fight for subscribers will occur, even as the sector evolves. Does Gamestop still have a place, or will it get lost in a fight? “

The AMC has hit the pandemic, but it is widely expected to recoup some of these losses as restrictions are relaxed and confidence returns.

“Time is ticking on all its debt ($ 5.4 billion and $ 4.9 billion lease debt), and some deferred costs, such as deferred rent payments, will be paid very quickly. Let’s say, the current assessment makes little sense when we return to the glorious era, “says Hughson.

Like Gamestop, people are fighting changing landscapes as they stream movies from the comfort of their home.

“In reality, AMC needs to evolve and expand, because it takes advantage of competitors who get lost and get cheap properties, but it requires trust and more cash. Loading, investors don’t seem to have any more desires. Danger.’

Lessons learned

Gamestop and AMC, and perhaps meme stocks, seem to be fascinating, but the online investment community and trading apps go nowhere.

“As far as financial markets are concerned, cats are out of the bag of social media, and influencer tendencies and investment chatter on Internet forums are unlikely to diminish,” Streeter says.

“In many ways it has stimulated young people’s interest in investing, but when investors burn their fingers for the first time by investing in very risky stocks, they return away from the stock market. For a long time there is a risk that it may not come.

Max Rothery of the online financial community Finimize is more optimistic. ‘The most exciting thing is to see evidence that these viral moments can lead to good investment habits. If new investors continue to learn together, this may be the smartest generation of investors ever.

For those who were first exposed to investment by Gametop’s enthusiasm, it may have taught them lessons.

Trading platform eToro reveals that UK investors have a more balanced portfolio, holding equities (64%), fixed income (46%) and cash (43%).

In contrast, only 13% of retail customers invest in meme stock.

Finimize member David Middleton said the story of the meme stock prompted him to take a closer look at future investments.

“Gamestop roller coasters recognize how emotionally sensitive stock prices can be, focus on developing their own valuations and investment criteria, and make sure they are well diversified. did.”

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Are DIY investors still interested in meme stocks like AMC and Gamestop? Are DIY investors still interested in meme stocks like AMC and Gamestop?

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