What are the four most dangerous words in investing? This time it's different.

That phrase implies that a person knows enough about what's happened in the past to think that what's going on now will be different. In the case of the dizzying gains generated by AMC Entertainment Holdings (AMC 0.45%) and GameStop (GME 1.12%) in recent days, I'm afraid that some newer investors hoping to make a fortune aren't familiar with relevant examples from the past.

I'm not in any way suggesting that new investors are the only ones hopping on the AMC and GameStop bandwagons, by the way. I'm sympathetic with the desire to give short-selling hedge funds their comeuppance.

However, there's a good precedent that I suspect is worth examining in light of what's going on right now. How will the AMC and GameStop sagas end? Just ask Tilray (TLRY).

Red line going down in front of a $100 bill

Image source: Getty Images.

Flying high

Canadian cannabis producer Tilray listed its shares on the Nasdaq stock exchange in July 2018. Those were heady days for marijuana stocks. The Canadian legal recreational marijuana market was scheduled to open in October. Tilray ranked as one of the companies expected to profit significantly from the new market.

Right out of the gate, Tilray became the hottest pot stock around. Its shares skyrocketed after its initial public offering (IPO), then kept on rising -- by a lot.

TLRY Chart

TLRY data by YCharts

The above chart doesn't fully reflect what happened. On an intraday basis, Tilray's shares vaulted close to 1,400% at one point. That's close to GameStop's peak gain last week.

AMC and GameStop in 2021 and Tilray in 2018 share one important quality: exceptionally high short interest. Tilray's share price vaulted to dizzying levels back then as short-sellers covered their positions during an epic short squeeze. That's exactly what's happening with AMC and GameStop today.

What happened next

Now for the important lesson. Here's what happened with Tilray's shares after the short squeeze ran its course.

TLRY Chart

TLRY data by YCharts

Once there were no longer any short-sellers left to cover their positions, the momentum behind Tilray's rapid rise evaporated practically overnight. A few rebounds proved to be mirages. 

The short-sellers lost a lot of money. However, regular investors lost a lot of money, too. Some of the same people who were euphoric as Tilray stock soared were devasted when it sank. 

With AMC and GameStop, short-sellers are losing even more money than what happened with Tilray a few years ago. The sad reality is that many investors who jumped into AMC and GameStop stocks thinking huge profits were guaranteed will almost certainly lose as well.

Key differences

To be sure, there are key differences between the situations for Tilray in 2018 and AMC and GameStop today. However, in some ways, those differences are more positive for Tilray.

AMC and GameStop face enormous headwinds with the COVID-19 pandemic. GameStop's retail business model is under pressure because of online game purchases. In 2018, the future seemed to look bright for Tilray with the legalization of recreational marijuana in Canada and legalization of medical cannabis in Europe. 

Tilray CEO Brendan Kennedy warned his counterparts at AMC and GameStop recently in a CNBC interview, saying, "My advice to those CEOs would be that, at times like this, your company is not your stock and your stock is not your company. Keep it all in perspective as these very unusual market dynamics are taking place."

That's great advice for investors as well. AMC and GameStop stocks aren't the same as their businesses. If you wouldn't want to own the business, don't buy the stock.

As the old saying goes, "History doesn't repeat itself, but it often rhymes." Current investors flocking to AMC and GameStop should heed the lessons to be learned from Tilray's experience.