stocks meme euphoria put to the test in a bear market

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With a rise in the stock market, which most analysts consider temporary, those who at the end of 2020 and the beginning of 2021 popularized bets on the so-called stock meme. A return that has been noticed in the market, and much in the case of the strong rise of 276% in just 11 days of Bed Bath & Beyond.

Bed Bath & Beyond (AP Photo/Paul Sakuma, File)

Of course, BB&B — a losing company, with falling sales and high debt — has collapsed in just a day and a half and this fervor in meme stocks can lead most small investors to heavy losses again. .

According to Vanda Research, and so far this year until August 16, the average losses of the portfolios of these investors known as retail investors, was 19%. The S&P 500 index has lost 10.24% in this same period.

The high risk of their bets, many of them contrary to the sentiment of professional managers, does not deter these amateur investors, many of them from their accounts on digital platforms with minimal or no commission. With small amounts, they have once again given air to the markets with daily investments of $1,360 million from August 11 until the middle of the stock market week that ends on the 19th of the same month, according to this analysis firm.

“This week we have seen how small investors (retail investors) continue to buy shares in the US aggressively, thereby supporting the upward momentum in the market,” explain Vanda Research analysts Marco Iachini and Giacomo Pierantoni.

Social media forums

Most of the purchases that have been increasing in recent weeks have been concentrated in ETFs, in some technology companies, Tesla being the first one and stock meme. These are titles whose appeal is built on social media such as Reddit (WallStreetBets), Twitter and Facebook. Around these actions, coordinated movements of small savers are generated that a year ago unexpectedly took off the value of GameStop

Iachini and Pierantoni explain that the possibility that this return to prominence of the great movements in meme stocks may be a phenomenon that does not last long. And not only because of the losses but because “the current moment is less favorable to a broad and sustainable rally” in these speculative actions. In 2021 the market was on the rise, the Fed had its stimulus intact and there were still savings from economic aid due to the pandemic. Now the scene is different.

In fact, the activity of small investors is far from reaching the peak of 2021 and although there are many similar signs and this phenomenon can continue with rising markets in the medium term, “the strong positive momentum in meme shares is normally not sustainable long-term in a bear market”, explain Iachini and Perantoni.

The warning from these analysts is that the decline tends to be brutal. “We doubt that the average investor can sustain much more pain in profits and losses in 2022”, they conclude.

And there are already losses.

Gamestop (Photo: Getty)

Gamestop (Photo: Getty)

Rise and Fall of Bed Bath & Beyond

The recent case of BB&B is significant. Ryan Cohen, a self-styled activist investor but also founder of e-commerce company Chewy and chairman of GameStop, bought BB&B stock in March to force changes at the company. He came to have close to 10% and after that revelation the shares rose throughout April to lose steam in the following months. This summer it was confirmed that he continued to maintain his positions and that heated up the chats in social forums.

That announcement was taken as a great moment to bet on this commercial chain. And in the same week the Financial Times published the viral story of Jake Freeman, a California student who has made more than $100 million in a week betting on BB&B, albeit with an initial investment of $25 million.

But in the middle of the week when the price was at a peak again, and having informed the SEC, Ryan sold. All.

It is estimated that he may have earned about $60 million, but many of those who have raised the value will continue to account for more losses on paper. AMC, GameStop, other stocks favored by these investors, and even Tesla were not spared Friday from market losses.

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