I like money as much as anybody, and I’m not too pure to chase quick cash, if the opportunity seems plausible. So in 2021, I decided to dabble in the meme-stock craze that was upending Wall Street and making some gutsy day-traders rich.
Gaming retailer GameStop (GME) was the first meme stock, with trader Keith Gill first making the case for why the stock could skyrocket in August of 2020, on the Reddit channel WallStreetBets. Almost nobody noticed Gill’s pitch until the stock did, in fact, blast off five months later. Part of Gill’s strategy was looking for beaten-down stocks with high levels of short interest and bet on a “short squeeze” that could trigger an exponential rise in the stock price.
It happened. Before Gill’s pitch, GME traded at around $1. It drifted up slowly toward the end of 2020 and then went crazy, peaking at a closing price of $87 on January 27, 2021. More remarkable than the gain was the fact that it appeared to have nothing to do with GME’s financial performance, which was dismal. Instead, ordinary retail investors organizing on social media seem to have sent the price soaring 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 started to reverse a four-year decline and get frothy. The stock jumped from a closing low of $1.98 in early January of 2021 to nearly $20 just three weeks later. It wobbled for awhile, then exploded, peaking at $64 on June 2, 2021. The gradual end of the COVID pandemic might have been bullish for the stock, since people would start going to the movies again. But that didn’t explain a 31-fold ascent in the stock price. AMC was still a giant money-loser, with no near-term prospects for turning a profit. Again, a throng of crowdsourced buyers seemed to have driven the surge.
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This is around the time I got interested. I’m not as dumb as I might seem, and I was completely aware that meme stocks could plunge as fast as they soared. In fact, I expected that. But people were also making real money in these bubble stocks, if they knew when to sell. Unlike some Bahamian crypto token, the stratospheric prices of GME and AMC were real prices somebody was willing to pay in real dollars you could put in the bank and spend.
I was willing to experiment and see what happened. One thing I’ve discovered as an investor is that it’s psychologically easier to buy stocks than to sell them. Once a stock is down by 20% or 30%, your primeval bargain-hunting impulses kick in, making you comfortable buying. Stocks usually go up in the long term, so odds are the market will someday justify your buy decision, if only by default. But if the value of a stock you hold has gone up, it can be hard to sell and take profits if you might be forfeiting even bigger profits in the future. If you’ve lost money on a stock it can be even harder to sell, since locking in those losses is an admission of failure.
I didn’t want to buy GME or AMC, since those shares were probably already memed out. What might the next meme stock be? I perused WallStreetBets and everybody seemed to be talking about the old mobile phone company, Blackberry (BB). I studied the stock history. From 2003 to 2008, when the ticker symbol was RIM, Blackberry was a high-flier, and for good reason. The Blackberry phone was a phenom in the early days of smartphones, a real product generating huge profits. Then iPhone and Android devices effectively killed the Blackberry. The stock had fallen from a peak of $148 in 2008 to a low of barely $3 in 2020.
There was a surge of excitement in January 2021, when GME and AMC were taking off. BB went as high as $25 for one day, then fell back to the $10 range. By the time I was looking at it, shares were around $14.
Was BB the next meme stock? Or was it spent? It’s bottom-to-top gain was 633%, based on a $3 bottom and a $25 top. But that was only for one day. GME had risen by 8,600% from trough to peak. AMC’s bottom-to-top gain had been 3,000%. Both were down from their highs but way above pre-meme levels. Blackberry’s 633% gain, for just one day, was paltry, by comparison. It would probably go much higher, once the WallStreetBets hordes piled in. This was my big chance.
I was willing to commit $2,500. If BB became the next GME, and I sold at the top, I’d net more than $200,000. If it were the next AMC and I sold at the top, my gain would be a cool $75,000. If it memed and I sold at the middle instead of the top, I’d still have enough money for a new sports car—though perhaps used, rather than new. And if BB turned out to be a flop, well, at least I’d be able to write a story about it.
Since you’re now reading that very story, you know what happened. In June of 2021, I bought 171 shares of Blackberry at $14.60 per share, a total investment of $2,496.60. Blackberry never memed once I bought it. Maybe that short-lived 633% gain was all the meme it had in it. I bought high, it turned out, and the only way to make money by buying high is by selling higher.
I never got a chance to sell higher. One month after I bought BB, it was 27% lower. One year after my purchase, BB was down 58%. With 2022 drawing to a close, I decided BB was never going to meme and I should just acknowledge my folly and cut my losses. I sold all 171 shares at $4.31 apiece, 70% less than what I had 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 I was planning to write this story, he shrieked, “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, no matter how much I hated losing it. If I took a foolish risk, it was also a measured risk.
Should I have paid more attention to Blackberry’s fundamentals? No! And if I had it wouldn’t have mattered if I did. 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, anyway. This was always about trying to capitalize on a market phenomenon—a speculative bubble—not trying to spot unappreciated value.
Is there some big lesson here? Beats me. The meme moment seems to have passed, as many pros predicted it would. GME is still above its pre-meme price, but the curtain is falling on AMC, and a handful of other mini-memes rapidly unmemed. If you visit WallStreetBets these days looking for stock tips, you’re more likely to find a lot of moping about the woes at Tesla and Twitter and a gloomy Christmas caused 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 term. I was buying for the short term, hoping the stock would go up and I’d be able to unload it on some schlub who got in later than I did. Instead, I turned out to be the schlub. Maybe the next time there’s a get-rich quick scheme, I should get in sooner. Or force myself to ignore it.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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Source: https://finance.yahoo.com/news/my-meme-stock-fiasco-153417561.html