Shares of energy company Torchlight Energy Resources (NASDAQ:TRCH) fell as much as 28% in the first 90 minutes of trading on June 23. That follows on losses of around 25% from the previous trading day. And yet the shares are still up some 600% or so since the start of the year. This is not normal trading action.
Oil and natural gas prices were higher in early trading today, so today's drop isn't related to the commodities that underpin Torchlight Energy's business. And while Torchlight is in the middle of a merger with Canada's Metamaterial, the last news on that front came out on June 21. So that's not likely the issue today. Which leaves one last option: Reddit message boards, which have taken up Torchlight as a so-called meme stock.
The ups and downs of meme stocks are frighteningly dramatic and unpredictable. Today is just one more example of the extreme volatility being caused by this speculative group of traders. And in Torchlight Energy's case, that's on top of a very complex merger deal with Metamaterial, which is basically just looking to get a U.S. listing. In fact, after the deal is fully consummated, the plan is for the combined entity to jettison Torchlight Energy's energy operations. The complexity of this agreement is part of the reason Reddit message boards have been attracted to the stock, but at this point any fundamental underpinning to the stock moves is likely gone -- emotion is the name of the game right now.
Long-term investors buy a stock to benefit from the long-term growth of a company, not in the hope that they can sell the stock at a higher price to someone else and make a quick buck (profiting from what is often called the greater fool theory). Right now, with Torchlight Energy, investors should probably be watching the madness and popular delusions of the speculative class safely from the sidelines.