Rebirth of the meme stock craze? 5 brutally honest reasons why you shouldn’t be buying, despite the hype

It’s Tuesday May 14th and it looks like the meme stock craze is back following a tweet from Roaring Kitty, the meme stock phenom who led the meme stock craze in 2021, when retail investors participated in a short squeeze of a handful of stocks whose shares were buoyed by social media buzz instead of business fundamentals.

The price of shares of meme stocks including GameStock, AMC, Blackberry, Tupperware, and headphones manufacturer Koss are all up and/or halted, with the expectation that the feverish activity will persist. (Curious investors will want to check out the Stash Guide to WallStreetBets lingo.)

“Buying meme stocks is extremely risky,” says Stash Chief Investment Officer Doug Feldman. “It can be hard to resist the urge to participate in what looks like a fun and great opportunity to make a quick buck. But we know that many people who buy meme stocks end up losing the money they’ve invested. A better approach is to invest in a diversified, managed portfolio that has less risk. That’s the Stash Way.”

Here are five brutally honest reasons why you shouldn’t be buying, despite the hype

1. This most recent spike in GameStop interest is due to a single tweet

What kicked off this surge in interest from Reddit and news outlets? Roaring Kitty, the internet influencer who led the last GameStop craze, posted on X for the first time since 2021. The post? A meme of a gamer leaning forward in his chair. Not what our experts would consider sound investing advice.

2. Meme Stocks aren’t solid investments and inexperienced investors lost the most

Meme Stocks’ stock prices are inherently buoyed by social media buzz versus business fundamentals like profit and growth. That means they are unlikely to yield long-term returns. 

Inexperienced investors lost millions in the wake of the last meme stock craze, many losing their life savings, investment accounts, and retirement funds. Retail investors—or the average investor who uses a platform like Stash or Robinhood to buy stocks—are often those who lose the most. 

3. Buying meme stocks is like gambling, not investing

The S&P 500 has been up an average of more than 12% over the past decade (Source: FactSet 5/14/14-5/14/24). Meme Stocks, on the other hand, are extremely volatile. If you wouldn’t want to lose money gambling, then meme stocks are not for you. Don’t be hasty: Stick with your goals and you’ll be happy you did.

4. Remember, almost everyone would have been better off buying an ETF instead of GME in 2020

Most investors who bought shares of GameStop after the 2021 meme stock craze began purchased stock that had already massively jumped in price. In the year between March 14, 2021 and March 13, 2022 GME’s value declined 55%. Meanwhile, a more broad market ETF, like Match the Market, gained 14% in value.

This chart is purely an illustration of the past performance of GME, NASDAQ, and the S&P 500. Past Performance does not guarantee future results. Source: FactSet, annualized average return for the period of 12/31/2003 – 12/31/2023.) The rate of return on investments can vary widely over time, especially for long term investments including the potential loss of principal. This information is for educational purposes only and should not be construed as investment advice.

5. FOMO is real, but stay the course

We’re all sensitive, aware human beings who want to be involved in the next big thing. But just because it feels like “everyone is doing it” doesn’t mean it’s right for you. Don’t let excitement or fear drive impulsive decisions. 

If you’re still itching to invest, yes, you can buy individual stocks on Stash:
Individual stocks are available on Stash. Click into your personal portfolio, then search investments using the search bar.

In that same search bar you can also find diversified ETFs, or baskets of stocks, where you can balance your risk by investing in several stocks with one purchase. Stocks Nationwide, as one example, tracks the entirety of the US stock market in one fell swoop. 

Our advice: Invest with our managed portfolio 

Smart Portfolio, our managed portfolio that is included in every Stash subscription, gives you exposure to thousands of stocks in various industries (and that even includes exposure to a tiny bit of GameStop and other meme stocks). We automatically rebalance your investments every quarter and ensure you have the right amount of exposure for your risk level. It’s the easiest way to invest so you see your money grow. 

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