The internet is a really weird place. It’s a world that can make an obscure Shiba Inu into the longest collective running joke in all of history, generate overnight fame for random people caught doing ridiculous things on video, and where global communities of like-minded people can gather to do whatever it is that they do best.
That last one can get pretty dicey, especially on social media platforms. People can come up with some pretty wild ideas that the group-think will actually follow through on, like some kind of giant prank on the world. Some internet shenanigans are cheeky and fun, but others turn normal businesses into Reddit stocks…
What is a Reddit stock?
Reddit stocks, also known as "meme stocks," take their name from their status primarily as favorites of a Reddit group known as WallStreetBets. On the surface, these stocks don’t seem to have a lot in common, besides attracting sudden cult followings on self-service trading platforms.
Back at the beginning of the year, Reddit’s sweethearts were companies like GameStop (NYSE: GME) and AMC (NYSE: AMC). What happened from there is now trading history, but essentially, because Reddit members felt a certain way about GameStop and AMC, they bought lots and lots of stock, not caring if they lost money in the end.
This feeding frenzy drove the price of GameStop up wildly, taking it up over $347 per share in late January, from about $17 per share at the beginning of the year. As of the writing of this article, it’s down around $167 but has been steadily declining for weeks. The same story played out for AMC, but its peak was not as dramatic or as early. It, too, is now in steady decline.
Nostalgia and spite: driving forces
Meme stocks aren’t like other categories of stock, where there’s generally something about the company that makes it easy to qualify into tidy labels. The only common feature of meme stocks is that they’re promoted by large internet trading groups and are bought by the members, often regardless of the stock’s price or potential. They spike fast and drop hard as they reach their saturation points, or holders simply grow tired of their playthings.
Two main forces drive the choices this new class of investor is making: nostalgia and spite. The nostalgia comes in when the stock is chosen. It’s generally a beloved company that the community can rally behind. Reddit investors held fond memories of GameStop and AMC -- if this phenomenon had been possible a decade ago, we might have chosen to get behind Blockbuster and AOL. They also saw that their faves were being heavily shorted by people who clearly did not hold these companies in the same mythical esteem.
That’s where the spite comes in. Reddit stocks aren’t purchased for the fundamentals of the companies behind them. They don’t get chosen because someone thinks they’re going to make a solid investment. They’re mostly purchased out of spite, to "stick it: to the guys selling it short. How dare people who are evaluating these companies based on their ability to make a profit bet on them to fail?
And so a Reddit stock is born.
Of course, it’s more complicated than this, but it also sort of isn’t. The sheer buying power of a group like WallStreetBets means that a single small buy from each member can act as an outside market force that’s totally unable to be anticipated. It’s like if you’re planning for a sunny day on the beach, the forecasted odds of the weather being lovely are in your favor, but suddenly aliens invade and kick sand in your face. No one saw that coming.
The Millionacres bottom line
The most important thing for real estate investors to keep in mind when it comes to Reddit stocks is to stay away from them. Sure, they can make a fortune in a very short time if you’re a brave and robust investor with all the time in the world to feel out Reddit trends, but for most investors, a longer-term buy-and-hold situation is where the smart money is. Since this is the general investment strategy for real estate investors in particular, there’s absolutely nothing for you to see when it comes to Reddit stocks.
If you want to throw a few bucks into the next GameStop and see what happens, by all means, spin the wheel (toss a few greenbacks into the latest Dogecoin while you’re at it). You could make a lot of money if you can time both your buy and sell properly, but the odds are on your getting into a stock that’s not got the fundamentals behind it and that will ultimately leave you busted.
Call me old-fashioned, but when I choose an investment, it’s for the staying power. Sure, we’ve all gambled on short term gains, but it’s hardly a strategy that’s going to create real wealth over the longer term. If you want to get into some more passive investments, why not try a REIT (real estate investment trust) that you feel strongly about, or buy into a real estate project as a private investor?