The Meme Frenzy Retreat

expand iconUtpal Diwanexpand iconexpand icon05 FEB 2022
Crash and Burn
TABLE OF CONTENTS

The Frenzy

The Crash

Silver Lining

Parting Thought

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Last year, it was really a tale of two stock markets - the one that was rational and valued companies based on cash flows and then you had a complete casino society. The meme-stock frenzy was a speculative bubble, an unmitigated disaster waiting to unfold, taking with it shores of retail traders.The dot-com bubble and the meme-stock craze both had at least two things in common: rampant speculation and high levels of retail participation.

The Frenzy

Meme stocks became a fixture of markets in 2021 when an army of retail traders mobilizing on social media drove epic rallies in shares of struggling and highly shorted companies like GameStop and AMC, among others. Some on Wall Street started warning against meme-stock "gambling," saying the stock prices were wholly disconnected from a company's actual value and could crash at any moment.

Meme stocks weren't the only thing that drove the market frenzy. Some of the multiples on tech companies were unimaginable, like 1000 times PE, yes, and that's not a typo. Last year, meme-stock trading was the hot new thing, as many novice investors took their cues from Reddit’s WallStreetBets chat room.

The Crash

But this year, the party is crashing, as rising interest rates have put the kibosh on risk assets. The stocks of videogame retailer GameStop and movie-theater chain AMC have been cut in half! WallStreetBets was the place to be last year, with its membership quintupling to more than 11 million now from less than two million at the beginning of 2021, according to The Wall Street Journal. But now that meme stocks have hit the skids, WallStreetBets has lost its cache. On an average day last November, the site had about 27,000 comments on its main page, down from about 47,000 a year ago according to The Journal’s analysis of data from TopStonks, which tracks stocks mentioned on websites.

Rookie investors have discovered that making money isn’t so easy when the stock market falls, and many have gotten discouraged. Retail traders now account for about 18% of market volume, down from 24% in the first quarter of 2021, according to Bloomberg Intelligence. Most retail investors don’t know how to trade this market. They buy — price goes up, they sell and buy again. But when the market falls, they aren’t sure how to short, don’t understand options and when they buy and lose, they tend to think prices will rebound so they hold on or buy more, instead of selling out.

Silver Lining

There may be a silver lining to this. The plunge of meme stocks may lead novice investors to more conservative choices. Enter 99rises, your first of a kind investment advisory platform for retail investors that goes both ways. 99rises aspires to make you uncorrelated returns by devising personalized hedge long-short strategies. Have you ever wondered why the wealthy stay wealthy? It's because they have access to strategies like those offered by 99rises. That will all change and has changed with 99rises.

Parting Thought

We'll leave you with one parting thought -- these are people who can start to understand the different products to protect their own financial futures. The market is constantly changing, and 99rises is way to keep what you make. Just as you go to surgeons for surgery, you come to 99rises for sophisticated investment advice that was available only to the wealthy in the past.

Utpal Diwan

Utpal Diwan

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