Chasing Hot Stocks and Meme Stocks

By the time a stock is trending on social media, the smart money has already bought and is looking for retail investors to sell to. GameStop went from $20 to $483 in January 2021 — and back to $40 by February. Most retail investors bought between $200-400 and lost 70-90%. AMC, BBBY (now bankrupt), and dozens of meme stocks followed the same pattern. Research from the University of Technology Sydney shows that retail investors who buy trending stocks lose an average of 4.8% per month after purchasing. The excitement of being part of a movement is real; the returns are not.