Justin Bullock, FISM News
Meme stocks were surging again this week, but instead of being lead by GameStop (GME), the primary boom was seen in AMC Entertainment (AMC) share prices. Since January of this year Wall Street has seen a surge in every day “retail” investors via finance apps like Robinhood and Webull. While retail investors come from anywhere in the US, many of them have found a community online in the Reddit group WallStreetBets. The philosophy of this group started out with the idea of treating the stock market like a casino and involved making wild bets on stocks based on community shared grassroot research which they termed “Due Diligence” or “DD”.
In January 2021, a member of the WallStreetBets community, Keith Gill, also known by his online aliases “Roaring Kitty” and “DFV,” was at the heart of a dramatic surge in share price for GME. GME almost hit $500.00 per share during this period and was deemed by the public to be a “meme stock.” During GME’s meteoric rise, a number of other companies were identified by the Redditors including AMC, and these stocks also saw a dramatic, albeit lesser, rise in share price.
GME’s rise was eventually cut short as retail investment apps, like Robinhood, all prohibited the further buying of GME stock due to obscure financial reasons that they were harshly criticized for. Congressional hearings were conducted and Mr. Gill among others gave testimony. Since then the meme stocks have been relatively quiet until this week when AMC began a wild rise in share price.
AMC was hovering around $9.00 per share at the start May and rose to a high of $72.62 by June 2, 2021. This rise constituted an increase of almost 807% over the past month. Over the past 48 hours the price of AMC has fallen to around $45.00 per share at the time of this writing, which is still the highest share price AMC has attained in the past five years. AMC began 2021 hovering around $2.50 per share, so the current price of approximately $45.00 represents an 1,800% increase since the beginning of the year.
This wild movement has generated massive wealth for individual retail investors but has resulted in equally massive losses in the billions of dollars for traditional investment firms and hedge funds. The reason for the massive losses has to do with traditional investors betting against companies like GME and AMC by shorting their share prices. The decision to short companies like GME and AMC is grounded in the fundamentals based analysis most traditional investors employ. GME and AMC were both facing massive debts and significantly decreased revenues at the start of 2021 so many traditional investors believed that both companies were on a quick road to bankruptcy.
With the advent of retail investors led by the members of WallStreetBets, meme stocks like GME and AMC were given new life but this has come with a cost. Retail investors and especially the members of WallStreetBets employ an investment strategy whereby they treat the stock market like a casino and investment like it is gambling. The result is an extraordinarily volatile and risky market which experts and traditional investors say is extremely bad for the national and global economy particularly as the US comes out of the economic consequences of the COVID-19 pandemic.
The rise of retail investors and meme stocks have also coincided with the rise and fall of cryptocurrencies in recent days. Congress has already indicated plans to more strictly regulate the cryptocurrency market, and with the increasingly volatile and risky stock market it is expected that regulations will also be coming to Wall Street targeting investment behavior that is little more than gambling at a casino.