News You Can Use

'Meme stocks' AMC and BlackBerry are popping for now — but experts warn it could end badly

"Investing in these stocks isn't as much about greed as it's about fearing being left behind."

Share
A man wearing a protective mask walks past the AMC theater as the city continues Phase 4 of re-opening following restrictions imposed to slow the spread of coronavirus on August 16, 2020 in New York City.
John Lamparski | Getty Images

So-called "meme stocks" are once again trending, as the likes of AMC and BlackBerry have seen dramatic swings in recent days — but that doesn't mean it's a good idea to invest in them.

AMC shares soared 95% Wednesday to close at an all-time high of $62.55, as the company courted individual investors with perks like free popcorn. The stock then fell as much as 30% in early trading Thursday before rebounding in the afternoon — and then dropping again. BlackBerry jumped more than 20% early Thursday, building on a gain of roughly 32% Wednesday. Share prices then retreated, before recovering Thursday afternoon.

The current class of "meme stocks" consists of a handful of retailers and other companies whose share prices soared in recent weeks, thanks to speculative trading from retail investors. Many are active on Reddit's WallStreetBets forum.

While social media users urge followers to ride such stocks "to the moon," Wall Street believes big declines are on the way. For AMC, the average 12-month target price of analysts is 91.8% lower than Wednesday's record, according to FactSet. In a CNBC Pro analysis of nine major "meme stocks" — including AMC and BlackBerry, along with Bed Bath & Beyond, Beyond Meat, Express, GameStop, Palantir Technologies, Sundial Growers, and Tilray — analysts forecast an average decline of 40% over the next 12 months.

VIDEO6:1706:17
6 lessons new retail investors say they learned the hard way

Video by Helen Zhao

Ultimately, long-term investors shouldn't pay much attention to meme stocks, experts say: Stick to your investing plan and ignore speculative trades.

It's natural to be tempted. FOMO is real. "We are hypersensitive to what people are doing around us," Brad Klontz, a certified financial planner and financial psychology professor at Creighton University, told Grow during one of GameStop's spikes earlier this year. "Investing in these stocks isn't as much about greed as it's about fearing being left behind."

But financial advisors say the bulk of your portfolio ought to be "boring," with a focus on diversified, low-cost investments such as index funds and ETFs. If you want to experiment with stock-picking or dabble in cryptocurrency, limit those riskier investments to funds you can afford to lose.

"If you want to take 5% of your portfolio to explore investments and learn about the market, it's OK to get a little risky," Doug Boneparth, a CFP and founder of Bone Fide Wealth, told Grow. "You just have to do these things in a disciplined and rational way. It's when you don't have these systems in place that you can run into trouble."

More from Grow: