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3 Reasons I've Been Avoiding Meme Stocks This Year

By Maurie Backman - Updated Apr 3, 2021 at 12:56PM

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Some people love meme stocks. Here's why I don't.

It's been a wild year for meme stocks -- those that have gained popularity (or notoriety) via the internet. If you're not familiar with them, think of companies like GameStop (GME -8.87%) and AMC Entertainment (AMC -1.08%), both of which saw their stock prices soar earlier in the year.

These and other meme stocks may be a suitable investment for a lot of people, but they're just not right for me. Here's why.

1. They're very volatile

In late January, GameStop rose to almost $350 a share. As of this writing, it's trading for around $191. These rapid swings make me nervous.

Even though I tend to take a buy and hold approach to investing -- I buy stocks with the intension of keeping them for many years -- I don't want to load up on stocks that are likely to lose value over time. And based on the level of volatility meme stocks are subject to, I think that's a very real risk.

Man typing on laptop with numbers displayed on screen

Image source: Getty Images.

2. They don't align with my personal strategy

My investing strategy revolves around buying quality stocks with long-term growth potential. But today's popular meme stocks don't check off those boxes.

Going back to GameStop, I happen to think that most retail stores will grow increasingly irrelevant as consumers shift to online shopping. And given how easy it is to download video games, in particular, I don't see the value in dragging oneself out to a store to purchase them. As such, GameStop doesn't have great growth potential.

AMC is a different story. I do think there's a good chance movie theaters will make a strong comeback in a post-pandemic world, but as digital content expands and streaming services increasingly strike deals with Hollywood studios, the appeal of going to the movies could wane.

It's for this reason that I don't think AMC is a great investment for me. Plus, it came very close to filing for bankruptcy on more than one occasion. That alone is a red flag in my book.

3. Investing shouldn't be a popularity contest

The whole reason meme stocks have emerged is that users on different social media platforms decided to talk them up and buy them up. It's one thing to turn to social media for funny videos or fashion tips, but investing tips from unvetted strangers? No thanks -- not for me. The fact that a bunch of Reddit users opted to promote a few specific stocks does not, in my mind, make them solid investments -- which is why I'm opting to stay away.

Let's be clear -- it's more than possible to have success in the world of meme stocks. But for me, they just don't work. I'd rather put my money into growth stocks that reward me over a long period of time.

I may lose out on some opportunities by steering clear of meme stocks, but at the end of the day, I'm OK with that.

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Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
$91.48 (-8.87%) $-8.90
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$12.76 (-1.08%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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