Buffalo, N.Y. (WBEN) - The meme stocks, which got attention during the pandemic, have been dormant until a couple of weeks ago, when one post sent stock prices back up. One local financial planner says this is not something he recommends investing in.
Michael Angelucci of Level Financial says meme stocks are out of favor stocks that became popular through the internet, mostly through Reddit forums where people would chat about stocks during COVID, and people were bored and had some money who were playing with investments.
"In one of the most famous situations, the GameStop situation, a trader on Reddit named Roaring Kitty, had some familiarity with how the stock market worked, and he understood in a very kind of technical situation that a lot of investors were selling GameStop short, meaning that they had believed that GameStop was going to keep going down in value. He knew that if he got people to start buying it, which he popularized in his posts, it would cause the short sellers to actually have to buy back their stock," said Angelucci in an interview with WBEN.
He says that forced the price up, which all who bought in GameStop, they grew in wealth, regardless of whether they sold those stocks.
Angelucci is not a fan of investing in stocks like GameStop or AMC Theaters.
"We always say in this industry, there is investing in speculation, this is definitely a speculative move, because it's not based on any fundamentals," Angelucci noted.
He says the industry uses a metric called price to earnings ratio.
"So the price of the stock divided by the earnings of the company. Well, the U.S. stock market usually trades usually has a price to earnings of around $20. When it gets to around $25, for the overall market, people start to worry that the market is too high. Well, the price to earnings ratio of GameStop is something like $2,000. So it's astronomical, it's off the charts, Warren Buffett would never invest in GameStop," Angelucci explained.
He says if you want to speculate, he says you're on your own.
"I sometimes joke and say, if you're going to do that, go to the casino, and maybe you'll get free drinks and comped dinner and so forth and have some fun with games versus taking a speculation," Angelucci said.
From here, how these stocks do will depend on how long people hold.
"If people start making money and they want to sell, it starts the domino effect. If people start selling and taking their profits, then people will want to get out," Angelucci noted.