If you're a member of the Wall Street investment crowd, 2020 has been a humbling year. Although calls about a pandemic-afflicted financial meltdown were spot-on as second-quarter GDP decreased by a record figure, supporting calls about the stock market collapse have been laughably wrong. After a brief swoon in March, stocks continue to advance and many are now sitting near all-time highs.

To add insult to injury, there was one group that fared much better than Wall Street's finest: younger retail investors, often derisively referred to as the "dumb money" or their preferred nom de guerre: "YOLO traders" (YOLO being an acronym for "you only live once," a term reserved when one does something that appears to have a poor cost/benefit construct).

The risky behavior has been rewarded so far for many of these YOLO traders: a Goldman Sachs research note found the most popular stocks on Robinhood Brokerage (YOLO traders' platform of choice) significantly outperformed hedge funds and mutual funds in 2020. Not only are YOLOers picking better companies, according to Societe Generale, but they also had impeccable timing by diving in when markets bottomed in March.

Sign with a hastag and the acronym YOLO.

Image source: Getty Images.

What are the smartest "dumb money" buys right now?

If you've been around long enough, you've likely heard this story before. It seems as if once a decade there are stories about brilliant young investors making millions in the markets -- most notably via penny stocks in the 1980s, dot-com start-ups in the early 1990s, and house flipping in the early 2000s -- only to have it all end in financial tragedy.

This time might be different because many of these YOLO traders are focusing on high-quality businesses that are changing their respective industries. Three names that elicit near cult-like status in stock chatrooms at the moment are Peloton Interactive (NASDAQ:PTON), Tesla (NASDAQ:TSLA), and Palantir Technologies (NYSE:PLTR).

Three "YOLO stocks" worth buying

Peloton priced its IPO in September 2019 at $29 per share and hasn't looked back. The company has continued to exceed investor expectations with the stock up more than 300% year-to-date. Despite trading at an expensive 15 times sales, there's reason to believe there's further room for growth even in a post-COVID world.

In its first full-year results, Peloton grew total revenue 99% over the prior year. However, the company is working from a smaller base with subscription revenue, which is more akin to SaaS revenue -- stickier and higher margin -- than bike sales. Peloton's ambitions are more than just being a stationary bike manufacturer -- it aims to change the entire fitness industry, which will keep its subscription revenue growing rapidly for years to come.

Although Tesla and Palantir come from two different industries, they have a lot in common. Both have boisterous founders that are members of the "PayPal mafia": Elon Musk and Peter Thiel. But what is similar is they are changing their respective industries and continue to have significant room for growth. Since its founding, Tesla has changed the electric vehicle (EV) market from one of curiosity to a true business model. In just the last few years, a host of EV companies have IPO-ed and legacy automakers have finally begun to commit to the engine format. The future is away from internal combustion engines, and Tesla's formidable lead will not soon be overtaken. Tesla stock might have just arrived in the S&P 500, but the future remains bright. 

Palantir is at the forefront of bringing Silicon Valley-esque data analytics to the U.S. government with a focus on the intelligence and defense industries, announcing new contracts with the U.S. Army, NIH, and FDA, in addition to raising full-year revenue guidance to 44% year-on-year growth. Look for Palantir to continue to grow in this federal space as sales cycles are initially notoriously long but shorten considerably when adjacent government bodies become familiar with the product.

YOLO stocks without the YOLO mindset

In today's adrenaline-driven trading world, there's a lot of emphasis on YOLO trading, with many young investors throwing their last dime on undiversified positions, including risky, deep-out-of-the-money options on these three names. Like the dot-com day traders and home flippers of years past, this will likely not end well for many YOLO traders.

That said, some of them are not wrong in their stock selection process. These companies are at the forefront of effecting significant change in their industries and will reward investors for years to come. The key is to diversify and not take a YOLO mindset when buying these companies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.