Why You Need to Avoid Meme Stocks

Although meme assets have changed the financial game, it does not mean that they are a reliable investment option for you.

Meme stocks have trended since the start of this year. Dogecoin joined the meme craze, surging by around 12,000% in 2021, yielding massive returns.

As much as the meme asset boom could result in vital changes in the stock market, some experts refer to the assets as a bubble. You have to be careful whenever dealing with meme stocks. Here is why.

It’s Challenging to Make Timely Sells

The decision to sell ordinary stocks is challenging enough. Timing the market is nearly impossible. Moreover, assessing the assets on various factors such as growth prospects, valuation, and market conditions can be tricky. Determining the best time to sell meme stocks is impossible since they do not follow the fundamentals of other stock assets.

Moreover, the traditional investment strategy of buy and hold does not apply to meme assets. Keep in mind that sudden meteoric rises might disappear with ease. GameStop surged to around $483 per share in January. However, the platform lost about 90% in the weeks that followed.

You May Incur Massive Losses

Most stock assets have their values representing the firm’s underlying value. For instance, if a firm values at $10 billion, the price represents the firm’s profits, assets, growth prospects, and other components with intrinsic value.

However, everything is different with meme assets as they tend to act similar to lottery tickets. Meme stocks might surge today following positive news or comments and plunge drastically after the news shift. With such an attitude, you might risk losing your money with meme stock investment. For instance, if you had invested with GameStop in January, you would have lost 90% of your funds within two weeks.

Meme Stocks Are Overpriced

Stocks are different from betting. They represent company ownership, fluctuating depending on the businesses’ performance over time. Meme stocks differ in that aspect since there is no relationship between the price changes and the company’s value. With the risks related to the investment, you will agree that meme stocks trade too high for nothing.

Keep in mind that this is an individual opinion. Feel free to share your views.

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