“Meme” stocks - the latest “pump and dump”

“Meme stocks”, stocks which are trending or being recommended as a ‘strong buy’ on social media platforms like Facebook, Twitter or Instagram, have been shown to be 2021’s ‘pump and dump’ stocks. Pump and Dump is an age-old market manipulation tactic used by unscrupulous stock promoters to encourage new buyers to their stock, so it can be sold at inflated prices.

Assessing a group of these stocks, Open Markets Group (OMG), one of Australia’s largest retail brokers, proved that investors are hearing of them too late to yield successful investment results.

OMG assessed 12 of these stocks at five intervals:

· One month before they became popular online

· At the height of their online popularity

· One month after their height

· Three months after their height

· On June 30, 2021, the end of the financial year

The assessment results showed that investors in these stocks tended to buy them at a high price which then fell shortly after their purchase. This showed that by the time an investor sees a popular, trending stock online, it’s too late and an investment in that stock will most likely lose money.

By contrast, if an investor had purchased these same stocks a month BEFORE they became ‘memes’, they would have had a 110% increase in value by the June 30 date.

OMG CEO Ivan Tchourilov commented that Australian markets are “facing an unprecedented scenario”. “On the one hand, we are seeing the largest intergenerational transfer of wealth in history” as Baby Boomers hand their wealth down to younger generations and “on the other hand, the financial advice industry”, a valuable asset to maintain and grow this wealth, “is on its way to halving in size by 2023”.

Much needed “quality advice” is “becoming too expensive for many in the wake of new restrictions imposed after the Hayne Royal Commission” into Misconduct in the Banking, Superannuation and Financial Services Industry.

The 12 stocks assessed were: 88 Energy, Brainchip, Cirralto, Creso Pharma, Digital Wine Venture, Douugh, GME Resources, Lake Resources, Latin Resources, Mesolblast, Vulcan Energy and Zip Co.