Where next for meme stocks?
Of all the stock market developments over the last year or so, the stratospheric rise (and rise) of meme stocks is surely one of the most noteworthy. Heres my take. Lets recap. A meme stock is one that, thanks to huge attention on social media sites such as Reddit, jumps in value. As evidence of sizeable gains is posted online, others buy in. The fear of missing out (FOMO) then prompts even more people to do the same. Those betting against the company (short-sellers) are also forced to close their positions, further increasing the price. Its really that simple. 5G is here  and shares of this sleeping giant could be a great way for you to potentially profit! According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air And if you click here well show you something that could be key to unlocking 5Gs full potential... So far, the most high-profile meme stocks have arguably been US video games retailer GameStop and cinema chain AMC Entertainment. Both have helped many readers of WallStreetBets become rich over the last year. If Id bought the former on 28 December and sold exactly one month later, for example, Id have made 22 times my money. What happens next is a great question. Its also one I cant answer with any real certainty. No one can. This is unchartered water. That said, the performance of GameStop shares since January does tell us something. In February, they tumbled to $45. By March, they were back to $260. In May, they had fallen to $145. In June, they had climbed back over $300. Depending on your particular strategy, this volatility is either a gift from the market gods or the sort of nerve-shredding experience that puts some people off investing for life. Regardless, I think it sends a clear message about how volatile meme stocks might be going forward. Based on the December to January returns, youd likely think me mad to reply in the negative. Nope, not me! The problem is that hindsights a wonderful thing. Investors need to consider not just how they might feel if theyd invested in GameStop last year, but how theyd feel if they bought at the peak and then saw the value of their holding plummet. I reckon the fear of missing out would quickly become the fear of still being in. Looking ahead, Id still struggle to buy a meme stock. As a quality-focused investor, Im hooked on businesses and/or investment themes that should last. Nope, not on any metric. Probably not. The really interesting thing about all this is that, because business fundamentals are irrelevant, anything could potentially become a meme stock. Unfortunately, this also makes it hard to know which will be next to gain sufficient traction on social media. Its fascinating stuff from a distance. Meme stocks clearly have the potential to generate big profits very quickly. However, this is risky stuff and not something most Fools would be comfortable with. Anyone entering this arena needs to know theyre at the mercy of the crowd. A love of rollercoasters is essential. If my reluctance ever wavered, Id only ever play with money I could afford to lose. Without an edge, the latters likely.