Tom Discusses Meme Stock Volatility
Transcript:
Easan Arulanantham:
You talked about Robin Hood. And I’ve seen a lot of people make big profits and blessings mean stocks. And I know a lot of my friends and younger investors, there’s a draw to these stocks, do you have any tips and some of my tips would be?
Tom Vaughan:
I think a lot of people go into these with kind of looks like it’s an easy way to get rich, you know, I can hit a home run. And I know some my one of my friends, he invested in MCA and lost probably half of it in the first month. And he sat by his pet he held on for dear life. And he got lucky when it rebounded those last couple of weeks and took His providence got out. But as a younger investor, it’s handling those volatilities. And sometimes it costs money to learn these lessons, you got eight tips for younger investors. Yeah, I think I think it’s kind of fun, you know, it, it’s a distortion, I worry a little bit about what that distortion means, you know, for the market as a whole.
But there’s, it’s always the same issue, you still have to get in early, right. And so that’s not always easy. A lot of times, by the time you hear about it, unless you’re really, really plugged in, and really following things, you know, you might miss out and you get in towards the end, you know, because there’s no justification for the pricing of AMC, for example, at all matter of fact, you can see that the insiders are selling their stock like mad, so they can’t see it. And so, theoretically, at some point in time, you know, these things tend to work out, which would mean that that price would come back down, it could come back down fairly, you know, radically at some point in time. And so, if you can get in early and you want to play the game, it’s nothing wrong with playing games, just keep your investment small. I mean, I have a client that invested $14,000 into Apple, when it was falling apart and looked like it might go out of business before they got jobs back. And now it’s worth $2.3 million.
And so, you know, keep the investments fairly small, if it’s really going to work, and it’s really that great, you can generate a lot of money, you know, don’t lose, don’t lose your net worth on these things. So that would be that would be a tip, just keep it small, if it’s gonna work that small, will still turn into something pretty substantial.
The I guess my biggest tip, though, is just be super careful, because right now what I’m seeing, I’m seeing the same thing, cryptocurrency went from really Bitcoin to now what, five, five over 5000 different cryptocurrencies that when you dilute the market like that what you’re doing is diluting the, the supply to any one particular cryptocurrency, we’re starting to see that with the mean stocks. And we went from GameStop, and EMC, basically, to now Wendy’s, and, you know, different stocks that are moving, you know, all over the place. And as soon as that starts to happen, there just aren’t enough people to drive all of them. And so, you know, is the one that you’re investing in going to work? And, you know, would you do AMC right now, personally, no, it’s already had a huge run. So you’re really looking for the next one. And is the next one going to run with everybody else being diluted by all these other different mean stocks. So you know, it’s a game, it’s, I think it’s fun to have, you know, fun, we all spend money on different things that we have fun with. But I would keep the, that’s pretty small. Just because it’s, you got to figure out how to get in early and then getting out. That’s not like your friend said, got in hung in there. Probably got lucky to a certain degree that it came back. But it’s really difficult to get out at the right time and actually make a profit. So it’s, it’s it’s such a fast moving game. You’re, you’re playing in the big leagues there. But it works.
Easan Arulanantham:
Yeah, I guess you could talk about how it’s like kind of like a bandwagon effect where everyone’s jumping on this bandwagon.
Tom Vaughan:
And some people are gonna get left on the bandwagon while everyone else jumps ship. Yeah, I mean, are you on the side of the bandwagon barely hanging on? Or do you get on early to get a nice seat? You know, and so, and that’s, that’s the key. That’s true with all investing. Now, it’s just exaggerated in the mean, stocks because they move so fast. That’s true in all investing, did you get in, you know, at an adequate time, so that whatever run that stock might be having, you know, you’re still participating in that, or did you get in at the end of that run? And that’s where you lose money, right? I mean, that’s pretty easy to see. But and so that would be my strategy for looking at mean stocks would be probably to ignore the ones that had already run. And I would get in on those, you know, Reddit boards and what heavy Wall Street beds and I’d be just watching for what they were talking about. And they make small bets on say three or four different ones, you know, that are not already running, and see if we could get in early.
Find some of those other pieces. And you know if it didn’t work out, okay, great. I’d love to see the logic behind it, although that might be a deterrent because I think there’s sometimes there’s not as much logic as it needs to be. And maybe you don’t need logic. If everybody starts buying it, it doesn’t matter. So, you know, I would probably be diversifying my bets, try and find two or three other stocks besides GameStop and EMC, that I could get involved in and put some small bets on all of them and then see which one runs if something does run I might add to that bet if I get one right, I might continue to add to that bed and if something you know, doesn’t and you know, move on.