Like most people, I can get behind the idea of being rich. Filthy rich. Ideally right now.
And if that’s due to a lucky YOLO bet [1] on a stock going to the moon then so much the better.
The problem is I’d have to be very lucky. Because I don’t even make those bets.
No, I dutifully punch my ticket on the passive investing [2] slow-train while everyone else – apparently – quaffs champagne on a first-class Hyperloop [3] to Easy Street.
It’s hard not to wonder where it all went wrong.
Every book I read is out the window. Forget diversification [4]. Forget due diligence.
Just follow a two-step process:
- Plonk your cash down on a meme stock, crypto-currency, or SPAC [5].
- Drown in money.
Simple!
Not exactly. Because being inherently more furrowed-brow than laser-eyed [6], I can’t quite shake a nagging question.
What happened next?
Having fun staying poor
The headlines typically only report rags-to-riches tales or train wrecks.
But how are things going if you only jumped aboard some of 2021’s biggest investing thrill rides when they were hot?
And you forgot to get off?
Forget ‘follow the money’, let’s follow the emojis! 🚀🚀🚀
The tracks of my fears – The following collection of meme stonks, crypto-assets, and ETFs all triggered my hype alarm this year. Share price charts are from Yahoo Finance, denominated in US dollars. The Y-axis is log scaled, which is the right way to present prices but makes the peak-to-trough look less exciting than a linear scale. I’ve tracked the price level from a notional date of 31 December 2020 to show what could have happened if you bought in before Peak Froth.
GameStop
[7]GameStop was the poster child for the WallStreetBets David vs Goliath story that blew everyone’s minds in January 2021.
A ragtag band of Redditors – armed only with rocket emojis and pump-action call options – supposedly had institutional short-sellers on the run.
How did it work out?
If you’d dropped some coin on GameStop at the end of last year, your position had spiked more than 2,400% by 28 January.
Behold that first jagged peak in the graph – soaring over blasted earth like the Dark Tower [8].
And, by some black magick, you were up more than 12,000% if you’d bought GME shares that were going nowhere way back in July 2020.
But as The Investor wrote at the height of GameStop [1] mania:
GameStop isn’t worth $22.5bn. It just isn’t. The company should try to raise capital while it can at this price, because it won’t stay here.
It didn’t. Like gravity, the fundamentals eventually brought us back to Earth. If you bought in at the peak then you’ve lost 65% as I write this.
You’re still up 768% on bets placed on 31 December, mind you.
How firm are your diamond hands now?
AMC
[9]The world’s biggest cinema chain AMC was shuttered and mired in debt when meme-stonk status (and free popcorn) put a rocket up the shares.
Turned out this trip to the moon involved a crash landing six months later. AMC is down 60% from its high.
You’re 1,226% to the good if you’d bought on December 31 2020. Damn my low horizons.
Virgin Galactic
[10]Is Virgin Galactic heading for Zero G, or zero gees? As you can see the stock is prone to cratering.
Excitement mounts whenever everyone’s favourite Earthling emigrant threatens to leave the planet. But since going parabolic in February, the shares have plummeted like the oxygen levels in a depressurised spacecraft.
Virgin Galactic is down -75% from the peak and down -39% from our 31 December 2020 waypoint. Cue emergency klaxons!
Dogecoin
[11]Is this a joke? Yes, and a crypto-currency.
Dogecoin [12] began as a satire on Bitcoin [13]. But rearrange the following into a beyond-parody late-capitalism spectacle and you’re up over 15,800% in four months:
- A Reddit fanbase
- Mischievous tweets from Elon Musk
- A doge meme logo
If you’d somehow foreseen that 2021 would be the year of the doge, then you’re up 3,748% since 31 December 2020.
But if your strategy hinged on Elon’s latest Tweet, you’re down 75% since the top.
Theme ETF
A lifetime ago, a videogame called Theme Park [14] taught Gen X how to exploit a captive audience. If you loaded your popcorn products with salt, then you’d sell bucket loads more sugary drink to thirsty punters as they tooled around your rollercoasters.
Purchasers of salty thematic ETFs [15] will also be familiar with rollercoaster rides. Sprinkled with the promise of ‘disruptive innovation’ to get your mouth watering, these ETFs were lapped up in 2021.
But did these exciting investments justify the hype?
ARK Innovation ETF
[16]How can you go wrong investing in genomics, fintech, space exploration, AI and robotics? Well, for now, it seems the market thinks your growth stock holdings are massively overvalued [17]…
(The Investor is an admirer of this ARK’s Noah – superstar stock-picker CEO Cathie Wood – and he wants me to show ARK’s full 2020 performance. Yeah this ETF gained 153% in 2020. But that was then, this is now. And that’s the point!)
Defiance Next Gen SPAC ETF
[18]A Special Purpose Acquisition Company (SPAC) sounds like something that Sacha Baron Cohen would invent to entrap a Tory minister.
Turns out it’s a shell corporation that lists on the stock exchange, and is otherwise known as a blank cheque company.
SPACs are marketed to ordinary investors as a way of tapping into the riches of private equity.
Some SPACs are even celebrity-endorsed. The likes of Jay Z, Shaquille O’Neal, and Serena Williams have all gotten involved.
Sounds like a winner, right?
The US Securities and Exchange Commission (SEC) felt moved to mention [19]:
It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment.
Rize Medical Cannabis And Life Sciences ETF
[20]You can’t blame anyone for investing in a Cannabis ETF when 11 out 12 bathrooms on the parliamentary estate recently tested positive [21] for drugs.
But cannabis profits have gone up in smoke since the high in February.
That’s a shame because a joint select committee working to the sound of Big Ben’s bongs could really nurture grassroots support for this issue.
I’m sorry if I’ve made a hash of this analysis. [Sacked! – Ed]
Hubbly bubbly
The rolling wave of manias in 2021 doesn’t necessarily mean a huge market bubble is due to burst.
In fact, I’m relieved to see that subsequent losses in every one of these fad-stocks have released some pressure.
The best explanation I’ve seen for 2021’s rampant speculation is that Covid created a reservoir of savings out of stuck-at-home citizens. In 2020 this birthed a new generation of bored share traders. Surplus cash flooded the markets and pumped up prices across asset classes of every description.
I guess we’ll all feel the pain when that liquidity drains away?
Best of luck to anyone who walked into the casino and came out smelling of roses and money. I hope you hang on to your windfall.
As for the rest of us not relying on blind luck, let’s keep the passive investing faith.
The market mints winners and losers every day.
The tricky bit is that failure is silent, while success is noisy.
Take it steady,
The Accumulator