“Roaring Kitty” returns, ... What does this mean for young investors?

By:Rohan Balakrishnan

When meme stocks first emerged in 2021, day traders coordinated mass investments in meme coins such as Dogecoin or stocks like GameStop and AMC to run up their prices. However, they weren’t a bunch of anti-establishment marauders attacking Wall Street; rather, they were targeting short sellers. Short sellers are regarded by many as the most reviled traders in finance for their reputation of monetization of others’ failures. This disgust for short sellers fueled the mass investment in GameStop that led to its stock’s 2000% surge that ultimately squeezed firms like Citron Research to retire from the short-selling game and a year later, forced the hedge fund Melvin Capital to shut down their company.

WallStreetBets, a well-established Reddit community of day traders, promoted an us-vs.-them approach to investing, frequently using profane language and memes to vilify short-sellers. For the so-called Apes (as the day traders referred to themselves), causing financial harm to the short sellers was the priority, often more so than profiting.

However, after the initial frenzy died down, many investors suffered significant losses. The rapid rise and fall of meme stocks revealed the classic pump-and-dump nature of the trend. When investors sold and stock prices plummeted, those who had bought in at the peak were left to suffer for everyone else’s gain. Over the next 3 years, the volatility in GME and AMC decreased heavily and rather stabilized out until one single photo…

Roaring Kitty via Twitter "Locking in.”

In January 2024, after 4 years of silence, Keith Gill, the financial analyst and investor who rose to prominence for his role in the GameStop short squeeze of 2021, posted a depicting a man relaxing and then “locking in” His return sparked a new flood of interest in GameStop’s stock, which launched Gill to fame and fortune, along with others favored by an online community of amateur traders. Following Gill's tweet, GameStop shares surged by nearly 200%, reigniting the excitement of the meme stock era. However, this resurgence was short-lived as the stock price plummeted, wiping out much of the gains.

WSB’s approach appealed to younger investors because the rapid increase in stock price showed the potential for quick and substantial profits. Contrarily, the rapid decline in stock price served as a reminder of these investments' volatility and speculative nature. Unfortunately, many who bought during the surge faced considerable losses when the price dropped. Investing based on social media trends and the influence of online personalities can be exciting, but it's fraught with risk. This latest episode with GameStop shows us the importance of educating young investors about market fundamentals, practicing sound investment strategies, and approaching meme stocks cautiously. While the allure of quick profits can be tempting, the potential for significant losses is a reality that cannot be ignored.