20 BARRON’S July 12, 2021
It seemed to be only a matter of time.
When GameStop (ticker: GME),
BlackBerry (BB), and even the
desiccated carcass of Blockbuster
suddenly sprang to life in January,
the clock was already ticking for
when they would crash again.
Would it be hours, days, or weeks?
It has now been half a year, and
the core “meme stocks” are still
trading at levels considered outra-
geous by people who have studied
them for years. New names like
Clover Health Investments
(CLOV) and Newegg Commerce
(NEGG) have recently popped up
on message boards, and their stocks
have popped, too.
The collective efforts of millions
of retail traders—long derided as
“the dumb money”— have success-
fully held stocks aloft and forced
naysayers to capitulate.
That is true even as the compa-
nies they are betting on have shown
scant signs of transforming their
businesses, or turning profits that
might justify their valuations.
BlackBerry burned cash in its lat-
est quarter and warned that its key
cybersecurity division would hit
the low end of its revenue guid-
ance; the stock dipped on the news
but has still more than doubled in
the past year.
While trading volume at the big
brokers has come down slightly
from its February peak, it remains
two to three times as high as it was
before the pandemic. And a startling
amount of that activity is occurring in
stocks favored by retail traders. The
averagedailyvalueofsharestraded
in AMC Entertainment Holdings
(AMC), for example, reached $13.
billion in June, more than Apple ’s
(AAPL) $9.5 billion and Amazon-
.com ’s (AMZN) $10.3 billion.
Even as the coronavirus fades in
the U.S., most new traders say they
are committed to the hobby they
learned during lockdown—58% of
day traders in a Betterment survey
said they are planning to trade even
more in the future, and only 12%
plan to trade less. Amateur pan-
demic bakers have stopped knead-
ing sourdough loaves; traders are
only getting hungrier.
A sustained bear market would
spoil such an appetite, as it did when
the dot-com bubble burst. For now,
dips are reasons to hold or buy.
“I’ve seen that the ‘buy the dip’
sentiment hasn’t relented for a mo-
ment,” wrote Brandon Luczek, an
electronics technician for the U.S.
Navy who trades with friends online,
in an email to Barron’s.
The meme stock surge has been
propelled by a rise in trading by
retail investors. In 2020, online bro-
kers signed clients at a record pace,
with more than 10 million people
opening new accounts. That record
will almost certainly be broken in
- Brokers had already added
more than 10 million accounts less
than halfway into the year, some of
the top firms have disclosed.
Meme stocks are both the cart
and the horse of this phenomenon.
Their sudden price spikes are
driven by new investors, and then
that action drives even more new
people to invest. Millions of people
downloaded investing apps in late
January and early February just
to be a part of the fun. A recent
Charles Schwab (SCHW) survey
found that 15% of all current traders
began investing after 2020.
The most prominent player in
the surge is Robinhood, which said
it had added 5.5 million funded
accounts in the first quarter alone.
But it isn’t alone. Fidelity, for in-
stance, announced that it had at-
tracted 1.6 million new customers
under the age of 35 in the first quar-
ter, 223% more than a year before.
Under pressure from Robin-
hood’s zero-commission model, all
of the major brokers cut commis-
sions to zero in 2019. That opened
the floodgates to a new group of
customers—one that may not have
as much spare cash to trade but is
more active and diverse than its
predecessors. And the brokers are
cashing in. Fidelity is hoping to at-
tract investors before they even have
driver’s licenses, allowing children
as young as 13 to open trading ac-
counts. Robinhood is riding the
momentum to an initial public offer-
ing that analysts expect to value it
at more than 10 times its revenue.
These new customers act differ-
ently than their older peers. For
years, there was a “big gravitation
toward ETFs,” says Chris Larkin,
head of trading at E*Trade, which
is now owned by Morgan Stanley
(MS). But picking single stocks is
clearly “the big story of 2021.”
To be sure, equity exchange-
traded funds are still doing well,
as investors around the world bet
on the pandemic recovery and avoid
weak bond yields.
But ETFs don’t light up the mes-
sage boards like stocks do. Not that it
has been a one-way ride for the top
names. GameStop did dip in Febru-
ary, and Wall Street enjoyed a mo-
ment of schadenfreude. It didn’t last.
“Like cicadas, meme traders re-
turned in a wild blaze of activity
after being seemingly underground
for several months,” wrote Steve
Sosnick, chief strategist at Interac-
tive Brokers. Sosnick believes that
the meme stocks tend to trade
“The
swings
you get
can
definitely
make
you feel
some
sort of
way.”
Matt Kohrs, 26,
who streams
stock analysis
daily on
YouTube
MEME STOCK MANIA
The average daily values of shares traded for AMC Entertainment and GameStop have in some months
been on par with the market’s biggest stocks despite being less than 5% of their size.
AMC Entertainment Holdings GameStop Apple Tesla
Source: Bloomberg0 10 20 30 40 50 $60 billion
January
February
March
April
May
June