Ever since bands of smaller-pocketed and novice investors began taking stock prices of downtrodden companies to breathtaking heights three years ago, the potential for more flareups has been obvious.
Some things are different this time. The biggest change from the initial supernova for
But some things remain firmly the same. Chief among them is the risk of losing everything that accompanies the potential to make fast money playing such volatile stocks. Here’s a look at what’s going on:
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WHAT’S HAPPENING?
SHOULD THEY BE RISING THAT FAST?
Financial analysts and professional investors who care mostly about numbers like profits, cash flow and interest rates would say no.
THEN WHAT TRIGGERED IT?
A burst of momentum brought on by buyers. Conventional wisdom says a stock should eventually settle at a price that reflects how much cash the company is generating, where interest rates are heading and other factors. But in the short term, what sets a stock's price is how much investors are willing to pay for it. And, for the moment at least, people are willing to pay much higher prices for shares of
YOU WERE SUPPOSED TO SAY ROARING KITTY THERE, NO?
Yes, the spark that got the momentum rolling may have been a person who goes by the nickname Roaring Kitty. He was a central character in the initial surge for
WHAT DID ROARING KITTY DO THIS TIME?
After laying dormant since
HOW CAN THE REACTION HAVE BEEN SO QUICK?
This is the new age of investing, one where anyone can buy a stock with zero commissions simply by tapping a few times on a phone. It's the culmination of years of innovation. At each step of the way, consumer advocates hailed the broadening playing field, which allowed more people to invest in stocks and build wealth. But they also warned that easy access could encourage people to trade too quickly or too rashly.
HOW MUCH REACTION HAS THERE BEEN, REALLY? IT'S ALL AN EXAGERRATION?
It's been manic.
HOW DOES THAT COMPARE WITH 2021?
It's not as big. On Monday, investors pumped a net
“Do we think more retail traders can jump in on the trend in the coming days? Yes,” according to
Big hedge funds and other professional investing firms are better equipped to handle the situation this time around, he said, and they could be riding the wave higher with small-time investors before trying to exit the trades before them, which could leave those smaller-pocketed investors holding the risk.
WHAT ELSE IS DIFFERENT?
Meme-stock companies have more shares trading in the market than they did in 2021, which could lessen the chances of what's called a “short squeeze,” according to
A short squeeze is a relatively rare event that can yield eye-popping profits for people riding the wave. When investors bet a stock's price will go down in the future, they “short” it by borrowing shares and selling them. Later, if the price does indeed fall, the short sellers can buy the stock, return the borrowed shares and pocket the difference.
But when a highly shorted stock rises in price quickly, short sellers could scramble to get out of their trades. They can do that only by buying shares of the stock, which can set off a self-feeding cycle that makes the price shoot even higher.
Such a short squeeze likely contributed to
WHAT ARE THE RISKS OF JOINING IN?
It's important to know the momentum can shift just as suddenly the other way. It took just four weeks in 2021 for
Or, just look at Tuesday's trading.
After briefly reaching
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