TSI #8: The era of meme stocks is not over yet

Do you still remember how GameStop and AMC gained popularity in the midst of a major bull run? The markets were very generous back then. Mostly because signs of the pandemic easing were showing. Furthermore, a record amount of money was printed in 2020. Approximately 20% of all dollars in existence. Naturally, that money had to go somewhere. A lot of it went in the stock market and meme stocks were no exception.

Why GameStop and AMC?

Younger investors often confuse investing with gambling. Many of them thought they were investing in $GME and $AMC when it was actually speculative betting. Behind the pump was an army of traders on the Reddit forum r/WallStreetBets that helped drive a meteoric rise. It started there but soon spread to social media and the news.

However, most people did not make any money there. Yes, those stocks jumped by extraordinary amounts in a short period. But most investors were too late to make a handsome profit. Nevertheless, that did not stop retail investors as both meme stocks appeared on top 10 lists of favorite millennial and Gen Z investments. This week a new meme stock emerged.

What happened this week?

History tends to repeat itself. This week a small three-year-old company called AMTD Digital Inc. ($HKD) popped by 1,500%. Let me throw some numbers at you. It has around 50 employees and $25 million in revenues (2021). Now let me explain the scope of the madness.

This company grew larger than Walmart, which has 2 million employees and $570 billion in revenue. This is the latest meme stock’s price chart from the IPO on July 15 until Thursday. An initial public offering (IPO) is when a private company becomes public by selling its shares on a stock exchange.

AMTD Digital went from $15 per share to $2555 per share. It is already down 70% from the top but the price is still absurd.

In this classic pump and dump scheme, fraudsters typically spread false or misleading information to create a buying frenzy that will “pump” up the price of a stock and then “dump” shares of the stock by selling their own shares at the inflated price.

Should you invest in such companies?

Would you like a 1,500% return in a week? Who wouldn’t. Now let me rephrase. Would you like a 1,500% return in a week with a 99% chance of losing all your money? I think not.

The only way to make any money in such situations is if you are very early. The minute you hear about such stocks pumping in the media, it is already too late to make a good return. 

To Your Financial Freedom,