Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Caution – millennials losing out on ‘meme stocks’
You may recall an infamous group of renegade millennials that banded together earlier in the year through social media to create the world’s first ‘meme’ stock; GameStop Corp (NASDAQ:GME).
Using the definition on the Balance website; a meme stock is “a stock that has seen an increase in volume not because of how well the company performs, but rather because of hype on social media and online forums like Reddit. For this reason, these stocks often become overvalued, seeing drastic price increases in just a short amount of time.”
Not only did the buzz created by Redditors cause a rise in demand, but it sent GameStop shares soaring by some 1,700 percent as millions of small investors, employed a classic Wall Street ‘pump and dump’ manoeuvre to put the squeeze on big money. This mad scramble of fund managers caught on the wrong side of a trade, were now fighting to close-out their positions as quickly as possible without it become too costly.
Since January this year, successes have been few and far between for the meme stocks. Trading and wealth management infrastructure fintech OMG (Openmarkets Group) has examined data created by its retail trading platform, Opentrader, in recent months. What it found was surprising.
On average, the platform found that its baby-boomer and generation X clients were making more on so-called meme stocks while their millennial cohort were losing money. The platform said, “Based on an evenly weighted basket of the 11 stocks, investors over 40 would have experienced an average gain of 1.29%, with these stocks comprising a total of 3.8% of the share of their total trades.”
This compares to an average loss of 1.93 per cent for its millennial population.
OMG searched Reddit, Twitter, and trading-focused Facebook groups to find 11 of the most interesting trending stocks that came with “Rocketship” emojis, the symbol currently being used to indicate “strong buy,” then cross-referenced the stocks with Google Trends to confirm they were genuinely trending. OMG analysed what was bought and sold. The split of investors by age was 51% over 40 and 49% under 40.
Why was this the case?
Besides the obvious, that being a lack of sharemarket experience, millennials took twice as much risk, and lost twice as much. Owing to the lack of any real stock analysis, Millennials were more likely to buy at the top of the market at lofty valuations compared to their older counterparts. Openmarkets listed 11 stocks in order of ‘meme-worthiness’. They are:
88 Energy (88E), Creso Pharma (CPH), Douugh (DOU), Lake Resources (LKE), Brainchip (BRN), Vulcan Energy (VUL), Digital Wine Ventures (DW8), Zip Co (Z1P), Cirralto (CRO), Mesoblast (MSB), and Latin Resources (LRS).
The research team analysed ‘price variations’ throughout the year using the above table of stocks. “Every time one of these stocks rose quite significantly, it was driven by social media hype,” says OMG.
For boomers the highest average return on any one stock was Digital Wine Ventures at 8.27%, and the biggest loss was on Vulcan Energy at -11%. For millennials – the biggest average gain was 88 Energy at 26.59%, and loss was Latin Resources at -15.67%.
The findings from the OMG report found that those stocks listed above, weren’t necessarily good or bad investments, but rather – “it appeared that it was the act of trading according to social media “advice” and not according to a responsible and strategic approach to investing that made the difference.”
The main message here: Meme stock investing based on uninformed social media hype carries with it significant risk and should not be considered as a replacement to professional advice and experience.
Ivan Tchourilov, CEO of OMG said, “Considering we are seeing the largest inter-generational transfer of wealth in history, this is a very worrying trend. We would advise caution, and for investors to research, seek professional advice, and gain experience before trying to ‘time’ the market or make quick gains, especially in meme stocks.”
