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Wild Moves In AMC Stock Show Risk of Meme Investing

By Investing.com (Haris Anwar/Investing.com)Stock MarketsJun 04, 2021 08:39AM ET
www.investing.com/analysis/wild-moves-in-amc-stock-show-risk-of-meme-investing-200584109
Wild Moves In AMC Stock Show Risk of Meme Investing
By Investing.com (Haris Anwar/Investing.com)   |  Jun 04, 2021 08:39AM ET
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It’s hard to sit on the sidelines when the relentless rally in meme stocks continues, enriching millions of individual investors. The latest example of this retail frenzy is AMC Entertainment (NYSE:AMC). 

The shares of the money-losing movie-theater chain, which was on the brink of bankruptcy a few months ago, had gained 3,000% year-to-date by the closing bell on Wednesday after doubling in a single trading session. With a market valuation of more than $30 billion, AMC is more valuable than at least half of the companies in the S&P 500.

AMC Weekly Chart.
AMC Weekly Chart.

Once again, fuelling this rally are individual investors who group together on social media channels, like Reddit’s WallStreetBets forum and Discord chat rooms, predicting more gains ahead.

The retail frenzy to buy meme stocks first started in January, when millions of internet-savvy investors began to bid up stocks that were shorted by hedge funds. An abundance of liquidity, historically low interest rates and savings created during the pandemic played a big role in fueling this trend.

As this type of speculative trading becomes more popular, it’s important for investors to understand that investing in meme stocks is a high-stakes game in which the chances of getting badly burnt are quite high. 

AMC stock was trading 30% lower on Thursday morning after the company announced a plan to sell more than 11 million shares to take advantage of the retail interest and bolster its finances. In the sale announcement, the company also warned that investors should be prepared to lose all of their money.

According to the statement:

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last.”

“Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”

Chasing Asset Bubbles

Analysts on Wall Street are also warning that if you don’t have money you can afford to lose, you should stay clear of meme trending stocks because spikes are mostly followed by steep losses.

In a Bloomberg report, Joachim Klement, a strategist at Liberum, said many studies have shown that retail traders can distort prices for a short while, but they, on average, lose money doing that. According to him:

“Institutional investors should ignore these meme stocks and wait until the share price has settled down. Like in every bubble, the retail investors will eventually run out of people who are willing to buy into the hype, at which point the bubble bursts and the last ones holding the bag will have to nurse their losses.”

“AMC and other meme stocks are a case of people trying to find a sucker to buy into the hype who will take your overvalued stocks from you. Don’t be that sucker.”

Bottom Line

As long as interest rates are low and the cheap money is in abundance, this meme mania will continue. But if you invest based on fundamentals, this market noise shouldn’t divert your attention. Investing is all about managing your risk. Just buying one or two stocks whose fate is closely tied with speculative calls is a sure recipe for disaster. Seasoned investors diligently work to diversify their portfolios by not overextending in a few stocks.

Wild Moves In AMC Stock Show Risk of Meme Investing
 

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Wild Moves In AMC Stock Show Risk of Meme Investing

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Comments (23)
Park Terrace
Park Terrace Jun 05, 2021 5:16PM ET
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HODL
Hugo Gina Bastos
Hugo Gina Bastos Jun 05, 2021 6:58AM ET
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(Wall Street are also warning that if you don’t have money you can afford to lose, you should stay clear of meme trending) i love that
john dislias
john dislias Jun 04, 2021 7:18PM ET
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Blackberry next week to $25
michael Tomlinson
michael Tomlinson Jun 04, 2021 5:18PM ET
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aren't all stock purchases speculation?? and if so, why is this different. It sounds like you are carrying water for Wall Street. save your advice for your echo chamber.
Country mckinney
Country mckinney Jun 04, 2021 5:18PM ET
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Yeah...really suspect when strangers have concern for you and your monies out of goodness from their heart...Lol
Kareem Sultan
Kareem Sultan Jun 04, 2021 4:35PM ET
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you are saying truth about this bubble yesterday i deposited Usd 1200 to trade black berry and i was shocked with the way it goes down after touching above 20 it just cheat you and go down very fast so you can not go out quickly as you think it may go up but the reality is down more today less than 100 in my account
Ryan Salter
Ryan Salter Jun 04, 2021 3:16PM ET
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3.5 million APES will easily bleed you (and your overlords) dry! Welcome to "The Market of the Apes"!
YouTube Account
YouTube Account Jun 04, 2021 3:15PM ET
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Bottom Line: Don't chase bubbles, buy Tesla instead! l/m/a/o
William Ormsby
William Ormsby Jun 04, 2021 3:15PM ET
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if you aren't selling short term options and trading in and out of longer term options you are leaving money on the table here.
Marlon Garcia
Marlon Garcia Jun 04, 2021 2:53PM ET
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I am holding 100 shares of AMC stock. Should I sell now or wait and see if it hits GME price?
Asbjørn Madsen
Asbjørn Madsen Jun 04, 2021 2:53PM ET
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Its not gonna work like GME since GME was shorted above float. Please be responsible with your money. Only a tiny percentage Come out of this with gains while the rest ends up holding bags
Andre Saffold
Andre Saffold Jun 04, 2021 2:53PM ET
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Asbjørn Madsen Fake news..lol
Shane Sackel
Shane Sackel Jun 04, 2021 2:48PM ET
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Why is it that rich seasoned investors dont like the little people to make money? At least it gives you something to write about.
ja aa
ja aa Jun 04, 2021 2:46PM ET
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you misspelled "short sellers are desperate".
Jorge Gómez
Jorge Gómez Jun 04, 2021 2:37PM ET
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FUD. I think I'm done with this website.
ja aa
ja aa Jun 04, 2021 2:37PM ET
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agreed. it's this all day every day.
Robert Mack
Robert Mack Jun 04, 2021 2:35PM ET
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Is this meant to create FUD, manipulate the market? 🤔
Chris Laflame
Chris Laflame Jun 04, 2021 2:33PM ET
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In my opinion, what is most dangerous, if not the most criminal, are the savage and concerted acts of the Hedgies. If there were no such acts, there would be no Apes.
Biniam Abera
Biniam Abera Jun 04, 2021 2:33PM ET
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True
YouTube Account
YouTube Account Jun 04, 2021 2:33PM ET
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hedgies get wedgies!
Joao Abo-gaux
Joao Abo-gaux Jun 04, 2021 2:32PM ET
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You probably need to meet a certain number of articles because to write such an obvious one... oh gosh, are there risk in meme stocks? Really?
Luuk Bernard
Luuk Bernard Jun 04, 2021 2:32PM ET
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made more money in meme stocks than 5 yr trading lol You got payed by hedges?  haha
GFlen BC
GFlen BC Jun 04, 2021 2:31PM ET
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FUD
Jeffrey Lee
Jeffrey Lee Jun 04, 2021 1:11PM ET
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Lousy article
Antony Dupont Morissette
Antony Dupont Morissette Jun 04, 2021 11:25AM ET
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Real life infinite money glitch
freedom byforce
freedom byforce Jun 04, 2021 11:19AM ET
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while quality companies are doing share buy backs amc is dumping on share holders heads. talk about ******sandwich.
Gene Kret
Gene Kret Jun 04, 2021 7:17AM ET
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People will get hurt, period!
Jorge Gómez
Jorge Gómez Jun 04, 2021 7:17AM ET
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Yeah, hedgie people.
Andre Saffold
Andre Saffold Jun 04, 2021 7:17AM ET
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Haha! Hegies will by the looks of it.
Don Gamestop
Game_Over_Hedgie Jun 04, 2021 3:29AM ET
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I like popcorn and movies. 💎👐So I'm just gonna hold🚀
caleb rowe
caleb rowe Jun 04, 2021 2:45AM ET
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why wouldnt you mention what gas the wallstreet bets uses? the blatent curruption of a “free” market! we havnt firgitten 2008. its about a pinch of hustice.
freedom byforce
freedom byforce Jun 04, 2021 2:45AM ET
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wallstreets bets nor retail investors are moving amc or gme. thats a hedgefund game. the hedge funds are using retail to run cover. they will be left holding an empty bag.
Luuk Bernard
Luuk Bernard Jun 04, 2021 2:45AM ET
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freedom byforce  i have a 124.000 bag now  tnx to reddit
 
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