The Meme Stock Trade Is Far From Over. What Investors Need to Know.

By Avi Salzman

Illustration by Peter Greenwood

It seemed to be only a matter of time.

When GameStop (ticker: GME), BlackBerry (BB), and even the desiccated carcass of Blockbuster suddenly sprang to life in January, the clock was already ticking for when they would crash again. 

Would it be hours, days, or weeks?

It has now been half a year, and the core “meme stocks” are still trading at levels considered outrageous by people who have studied them for years. 

New names like Clover Health Investments (CLOV) and Newegg Commerce (NEGG) have recently popped up on message boards, and their stocks have popped, too.

The collective efforts of millions of retail traders—long derided as “the dumb money”—have successfully held stocks aloft and forced naysayers to capitulate.

That is true even as the companies they are betting on have shown scant signs of transforming their businesses, or turning profits that might justify their valuations. 

BlackBerry burned cash in its latest quarter and warned that its key cybersecurity division would hit the low end of its revenue guidance; the stock dipped on the news but has still more than doubled in the past year.

While trading volume at the big brokers has come down slightly from its February peak, it remains two to three times as high as it was before the pandemic. 

And a startling amount of that activity is occurring in stocks favored by retail traders. 

The average daily value of shares traded in AMC Entertainment Holdings (AMC), for example, reached $13.1 billion in June, more than Apple’s (AAPL) $9.5 billion and’s (AMZN) $10.3 billion.

Even as the coronavirus fades in the U.S., most new traders say they are committed to the hobby they learned during lockdown—58% of day traders in a Betterment survey said they are planning to trade even more in the future, and only 12% plan to trade less. 

Amateur pandemic bakers have stopped kneading sourdough loaves; traders are only getting hungrier.

A sustained bear market would spoil such an appetite, as it did when the dot-com bubble burst. 

For now, dips are reasons to hold or buy.

“I’ve seen that the ‘buy the dip’ sentiment hasn’t relented for a moment,” wrote Brandon Luczek, an electronics technician for the U.S. Navy who trades with friends online, in an email to Barron’s.

The meme stock surge has been propelled by a rise in trading by retail investors. 

In 2020, online brokers signed clients at a record pace, with more than 10 million people opening new accounts. 

That record will almost certainly be broken in 2021. Brokers had already added more than 10 million accounts less than halfway into the year, some of the top firms have disclosed.

Meme stocks are both the cart and the horse of this phenomenon. Their sudden price spikes are driven by new investors, and then that action drives even more new people to invest. 

Millions of people downloaded investing apps in late January and early February just to be a part of the fun.

A recent Charles Schwab (SCHW) survey found that 15% of all current traders began investing after 2020.

The most prominent player in the surge is Robinhood, which said it had added 5.5 million funded accounts in the first quarter alone. 

But it isn’t alone. 

Fidelity, for instance, announced that it had attracted 1.6 million new customers under the age of 35 in the first quarter, 223% more than a year before.

Under pressure from Robinhood’s zero-commission model, all of the major brokers cut commissions to zero in 2019. 

That opened the floodgates to a new group of customers—one that may not have as much spare cash to trade but is more active and diverse than its predecessors. 

And the brokers are cashing in. 

Fidelity is hoping to attract investors before they even have driver’s licenses, allowing children as young as 13 to open trading accounts. 

Robinhood is riding the momentum to an initial public offering that analysts expect to value it at more than 10 times its revenue.

These new customers act differently than their older peers. 

For years, there was a “big gravitation toward ETFs,” says Chris Larkin, head of trading at E*Trade, which is now owned by Morgan Stanley (MS). 

But picking single stocks is clearly “the big story of 2021.”

To be sure, equity exchange-traded funds are still doing well, as investors around the world bet on the pandemic recovery and avoid weak bond yields.

But ETFs don’t light up the message boards like stocks do. 

Not that it has been a one-way ride for the top names. 

GameStop did dip in February, and Wall Street enjoyed a moment of schadenfreude. 

It didn’t last.

“Like cicadas, meme traders returned in a wild blaze of activity after being seemingly underground for several months,” wrote Steve Sosnick, chief strategist at Interactive Brokers. 

Sosnick believes that the meme stocks tend to trade inversely to cryptocurrencies, because their fans rotate from one to the other as the momentum shifts.

“I don’t think it’s strictly a coincidence that meme stocks roared back to life after a significant correction in Bitcoin and other cryptocurrencies,” he wrote.

Sosnick considers meme stocks a “sector unto themselves,” one that he segregates on his computer monitor away from other stock tickers.

Indeed, Wall Street’s reaction to the meme stock revolution has been to isolate the parts of the market that the pros deem irrational. 

Most short sellers won’t touch the stocks, and analysts are dropping coverage.

But Wall Street can’t swat the retail army away like cicadas, or count on them disappearing for the next 17 years. 

Stock trading has permanently shifted. 

This year, retail activity accounts for 24% of equity volume, up from 15% in 2019. 

Adherents to the new creed are not passive observers willing to let Wall Street manage the markets.

“What this really reflects is a reversal of the trends that we saw toward less and less engagement with individual companies,” says Joshua Mitts, a professor at Columbia Law School specializing in securities markets. 

“Technology is bringing the average investor closer to the companies in which he or she invests, and that’s just taking on new and unpredictable forms.”

It is now changing the lives of those who got in early and are still riding the names higher.

Take Matt Kohrs, who had invested in AMC Entertainment early. 

He quit his job as a programmer in New York in February, moved to Philadelphia, and started streaming stock analysis on YouTube for seven hours a day.

With 350,000 YouTube followers, it’s paying the bills. 

With his earnings from ads and from the stock, Kohrs says he can pull down roughly the same salary he made before. But he also knows that relying on earnings from stocks like this is nothing like a 9-to-5 job.

“The swings you get can definitely make you feel some sort of way,” he says.

Companies are starting to react more aggressively, too. 

They are either embracing their new owners or paying meme-ologists to understand the emoji-filled language of the new Wall Street so they can ward them off or appease them.

AMC even canceled a proposed equity raise this past week because the company apparently didn’t like the vibes it was getting from the Reddit crowd. 

AMC has already quintupled its share count over the past year. 

CEO Adam Aron tweeted that he had seen “many yes, many no” reactions to his proposal to issue 25 million more shares, so it will be canceled instead of being presented for a vote at AMC’s annual meeting later this month. 

The company did not respond to a question on how it had polled shareholders.

Forget the boardroom. 

Corporate policy is now being determined in the chat room.

Big investors are spending more time tracking social-media discussions about stocks. 

Bank of America found in a survey this year that about 25% of institutions had already been tracking social-media sentiment, but that about 40% are interested in using it going forward.

In the past few months, Bank of America, Morgan Stanley, and J.P. Morgan have all produced reports on how to trade around the retail action, coming to somewhat different conclusions.

There can be “alpha in the signal,” as Morgan Stanley put it, but it can take some intense number-crunching to get there. 

Not all message-board chatter leads to sustained price gains, of course, and retail order flow cannot easily be separated from institutional flow without substantial data analysis. 

For investors with the tools to pinpoint which stocks retail investors are buying and which they are selling, J.P. Morgan suggests going long on the 20% of stocks with the most buying interest and short on the top 20% in selling interest.

For now, many of the institutions buying data on social-media sentiment appear to be trying to reduce their risks, as opposed to scouting new opportunities, according to Boris Spiwak of alternative data firm Thinknum, which offers products that track social-media sentiment. 

“They see it as almost like an insurance policy, to limit their downside risks,” he says.

For retail traders, the method isn’t always scientific. 

The action is sustained by a community ethos. 

And the force behind it is as much emotional and moral as financial.

New investors say they are motivated by a desire to prove themselves and punish the old guard as much as by profits. 

They learn from one another about the market, sometimes amplifying or debunking conspiracy theories about Wall Street. 

Some link the meme-stock movement to continued mistrust of big financial institutions stemming from the 2008 financial crisis.

“Wall Street brought our economy to its knees, and no one ever got in trouble for it,” says the 26-year-old Kohrs. 

“So, I think they view this as not only can we make money, but we can also make these hedge funds on Wall Street pay.”

Claire Hirschberg is a 28-year-old union organizer who bought about $50 worth of GameStop stock on Robinhood in January after hearing about it from friends. 

She liked the idea, but what really got her excited about it was the reaction of her father, a longtime money manager. 

“He was so mad I had bought GameStop and was refusing to sell,” she says, laughing. 

“And that just makes me want to hold it forever.”

Just like old Wall Street has rituals and codes, the new one does, too. 

A new investment banking employee learns quickly that you don’t wear a Ferragamo tie until after you make associate. 

You never leave the office until the managing director does, and you don’t complain about the hours. 

And the bad guys are the regulators and Sen. Elizabeth Warren, and not in that order.

The new trading desk—the apps that millions of retail traders now use and the message boards where they congregate—have unspoken rules, too. 

Publicly acknowledging financial losses is a valiant act, evidence of internal fortitude and belief in the group. 

You don’t take yourself seriously and you don’t police language. 

You are part of an army of “apes” or “retards.” 

You hold through the crashes, even if it means you might lose everything. 

And the bad guys are the short sellers, the market makers, and the Wall Street elites, in that order.

The group action is not just for moral support. 

The trading strategy depends on people keeping up the buying pressure to force a short squeeze or to buy bullish options that trigger what’s known as a gamma squeeze.

Keith Gill became the face of the Reddit army of retail traders pushing shares of GameStop higher when he appeared virtually before a House Financial Services Committee hearing in February. / Photo: Daniel Acker/Bloomberg

Many short sellers say they won’t touch these stocks anymore. 

But clearly, others aren’t taking that advice and are giving the meme movement oxygen by repeatedly betting against the stocks. 

AMC’s short interest was at 17% of the stock’s float in mid-June, down from 28% in January, but not by much.

As the price rises, the shorts can’t help themselves. 

They start “drooling, with flames coming out of their ears,” says Michael Pachter, a Wedbush Securities analyst who has covered GameStop for years. 

“What’s kind of shocked me is the definition of insanity, which is doing the same thing over and over and over again and hoping for a different outcome each time, and the shorts keep coming back,” he says. 

“And [GameStop bull] Keith Gill and his Reddit raiders keep squeezing them, and it keeps working.”

To beat the short sellers, the Reddit crowd needs to hold together, but the community has been showing cracks at times. 

The two meme stocks with the most determined fan bases—GameStop and AMC—still have enormous armies of core believers who do not seem easily swayed. 

But other names seem to have more-fickle backers. 

Several stocks caught up in the meme madness have come crashing down to earth. 

Bed Bath & Beyond (BBBY) spiked twice—in late January and early June—but now trades only slightly above its mid-January levels. 

People who bought during the upswings have lost money.

Distrust has spread, and some traders worry that wallstreetbets— the original Reddit message board that inspired the GameStop frenzy—has grown so fast that it has lost its original spirit, and potentially grown vulnerable to manipulation. 

Some have moved to other message boards, like r/superstonk, in hopes of reclaiming the old community’s flavor.

Travis Rehl, the founder of social-media tracking company Hype Equity, says that he tries to separate possible manipulators from more organic investor sentiment. 

Hype Equity is usually hired by public-relations firms representing companies that are being talked about online, he says. 

Now, he sees a growing trend of stocks that suddenly come up on message boards, receive positive chatter, and then disappear.

“It’s called into question what is a true discussion versus what is something that somebody just wants to pump,” he says. 

The moderators of wallstreetbets forbid market manipulation on the platform, and Rehl say they appear to work hard to police misinformation. 

The moderators did not respond to a request from Barron’s for comment.

“If you can create enough buzz to get a stock that goes up 10%, 20%, even 50% in a short period of time, there’s a tremendous incentive to do that,” Sosnick says.

The Securities and Exchange Commission is watching for funny business on the message boards. 

SEC Chairman Gary Gensler and some members of Congress have discussed changing market rules with the intention of adding transparency protecting retail traders—although changes could also anger the retail crowd if they slow down trading or make it more expensive.

Regulations aren’t the only thing that could deflate this trend. 

Dan Egan, vice president of behavioral finance and investing at fintech Betterment, thinks the momentum may run out of steam in September. 

Even “apes” have responsibilities. 

“Kids start going back to schools; parents are free to go to work again,” he says. 

“That’s the next time there’s going to be some oxygen pulled out of the room.”

Traditional investors may be tempted to write off the entire phenomenon as temporary madness inspired by lockdowns and free government money. 

But that would be a mistake. 

If zero-commission brokerages and fun with GameStop broke down barriers for millions of new investors to open accounts, it’s almost certainly a good thing, as long as most people bet with money they don’t need immediately. 

Many new retail traders say they are teaching themselves how to trade, and have begun to diversify their holdings.

In one form or another, this is the future client base of Wall Street.

Arizona State University professor Hendrik Bessembinder published groundbreaking research in 2018 that found that “a randomly selected stock in a randomly selected month is more likely to lose money than make money.” 

In short, picking single stocks and holding a concentrated portfolio tends to be a losing strategy.

Even so, he’s encouraged by the new wave of trading. 

“I welcome the increase in retail trading, the idea of the stock market being a place with wide participation,” Bessembinder says. 

“Economists can’t tell people they shouldn’t get some fun.”

Dark skies and silver linings

Which airlines will soar after the pandemic?

Uneven recovery will boost big carriers in America and China, and cheap and cheerful ones in Europe

The pandemic, with its lockdowns and travel bans, has clobbered the world’s airlines. 

Revenues per passenger-kilometre, the industry’s common measure of performance, plummeted by 66% in 2020, compared with 2019. 

The International Air Transport Association (iata), a trade body, expects them to remain 57% below pre-pandemic levels this year. 

Although the world’s listed airlines have collectively just about recovered from the $200bn covid-induced stockmarket rout (see chart 1), forecasters reckon that air travel will take until 2024 to return to 2019 levels. 

The companies’ total annual losses may hit $48bn in 2021, on top of $126bn in 2020. 

Many have been torching cash as fast as their aeroplanes burn jet fuel. 

Plenty survived only thanks to government bail-outs.

The industry-wide picture conceals disparities, however. 

Some airlines are struggling despite having cut costs, slashed fleets and shored up balance-sheets with commercial loans. 

Others are brimming with confidence. 

Big American and Chinese ones with large, increasingly virus-free domestic markets will return to profitability first. 

Frugal low-cost carriers that went into the pandemic in the black are close behind. 

By contrast, airlines that depend on lucrative long-haul routes may struggle if, as seems almost inevitable, business travellers substitute Zoom for at least some flights. 

Regional operators in places still ravaged by covid-19, such as India or Latin America, look precarious. 

And the airspace between those losers and the industry’s winners is widening.

Diverging fortunes are nothing new in the airline business. 

Most carriers make for a lousy investment (see chart 2). 

iata reckons that only around 30 of the 70 or so airlines for which data are available earned more than their cost of capital between 2008 and 2018. 

To keep flying, airlines need “strong balance-sheets or a parent with deep pockets,” says Rob Morris of Cirium, an aviation-data firm.

Despite a degree of deregulation in the past 50 years, at the end of 2019 governments still controlled or had big minority stakes in 29 of the world’s 100-odd listed airlines, according to the oecd, a club of industrialised countries. 

States prop up loss-making national carriers, including privatised ones, which they view as vital infrastructure and a source of patriotic pride. 

In announcing Japan’s latest bail-out, the authorities talked of 240,000 jobs at stake and emphasised the role airlines play in connecting far-flung parts of the archipelagic country.

Paternalistic governments have dug deep into their pockets during the pandemic. 

Between its onset and March this year public handouts to aviation exceeded $225bn globally, iata calculates. 

This largesse helps explain why fewer carriers entered bankruptcy worldwide in calamitous 2020 (43 of them) than in 2018 (56) or 2019 (46), according to Cirium.

Even if cash infusions tide some airlines over, though, they are no cure-all. 

On the contrary, they may prove poisonous. 

As Mr Morris of Cirium politely puts it, state support leads to “inappropriate cost bases”. 

One careworn observer remarks that Air France-klm, a Franco-Dutch entity, has been “paid by the government not to restructure”. 

France wants to save as many jobs as possible and the Netherlands to ensure that Schiphol in Amsterdam remains a big connecting airport. 

Neither objective has much to do with returns.

Moreover, bail-outs do not guarantee long-term success even in combination with a healthy pre-pandemic balance-sheet. 

Dubai’s Emirates enjoyed years of profits, as well as generous backing from its owner (a sheikhdom). 

So did Singapore Airlines (which is listed but controlled by the city-state’s government) and Cathay Pacific (Hong Kong’s publicly traded flag-carrier). 

Like many of their less lucrative counterparts with large international networks, including Air France-klm, British Airways or Germany’s Lufthansa, they all “rely on the whole world reopening”, observes John Grant of oag, another aviation-data firm. 

That will not happen until much more of the globe is vaccinated (see chart 3). And as much as executives dislike endless video calls, most despise constant flying even more.

Amid the uncertainty, two categories of carrier can expect to prosper. 

The first is the full-service network airline which, like beaten-up rivals, offers long- and short-haul routes but which also, crucially, caters to a huge domestic market. 

The second group comprises nimble and cash-generative low-cost carriers that fly on a multitude of regional routes.

The rebound in domestic flying favours American and Chinese airlines. 

Last year China, where covid-19 emerged but was suppressed more successfully than in the West, overtook America as the world’s biggest domestic market by capacity. 

Flights within China are back to levels from 2019, reckons Citigroup, a bank.

In America, internal flights make up 60% of air travel, compared with around 10% in Europe, the Middle East and Africa, estimates Oliver Wyman, a consultancy. 

The country still lags a little behind China but air travel in the run-up to the Fourth of July weekend surpassed pre-pandemic levels. 

In Europe, by contrast, fragmented as the continent is by national borders, the number of short-haul flights is still 55% below what is was before covid-19 hit.

Westerly tailwinds

Scott Kirby, boss of United Airlines Holdings, has warned that the American carrier needs about 65% of pre-pandemic demand for business and international long-haul trips merely to break even. 

Still, that looks achievable for United and its domestic rivals such as American Airlines, Delta Air Lines and Southwest (which pioneered no-frills flying in the 1960s but has turned into something like a domestic network airline, minus the international long-haul).

American, for example, earns around 70% of revenues from domestic passengers, whereas full-service carriers elsewhere might rely on the big seats at the front of intercontinental flights for half their revenues (and up to 75% of profits). 

It helps that years of consolidation waved through by light-touch regulators have created an oligopoly where the four big airlines ferry 80% of passengers.

The Chinese market is similarly carved up between a few big carriers—Air China, China Southern and China Eastern. 

As a result, their revenue per passenger-kilometre is twice what it is in nearby South-East Asia, where competition is fiercer. 

With Chinese domestic travel more or less back to normal, and their costly geopolitical obligations to expand loss-making international routes put on ice because of covid-19, the trio are in a better shape than ever before.

The domestic rebound and growing confidence have helped American and Chinese airlines raise cash and avoid protracted state support. 

Of the big Chinese ones only China Eastern required a substantial bail-out. 

The American firms got a huge bail-out but are exiting it quickly. 

In March American Airlines tapped the market for $10bn in debt, most of which went on repaying government loans. 

A month later United raised $9bn with a similar goal.

Importantly, the American companies have avoided the need to sell equity stakes to Uncle Sam. 

Combined with strong domestic cashflows, an early exit from government programmes gives the American and Chinese carriers a competitive advantage, says Andrew Charlton of Aviation Advocacy, a consultancy. 

In Europe, meanwhile, France has increased its stake in Air France-klm to nearly 30%, Germany has taken a 20% stake in Lufthansa and the ever-hopeless Alitalia is now fully state-owned. 

Even as the three European firms continue to retrench, while dealing with growing state involvement, United Airlines has just placed an order for 270 new jets, its biggest ever. 

Delta and Southwest have also been buying aircraft.

The return of short-haul international travel will revive the fortunes of the second group of winners: low-cost carriers in highly vaccinated places, where borders are gradually reopening and quarantine rules are being relaxed. 

European companies in particular stand to benefit from pent-up demand for holidays and visits to families and friends. 

More than eight in ten passengers flying with Ryanair, an Irish no-frills airline, and Wizz Air, a Hungarian one, are leisure-seekers, compared with no more than seven in ten for Lufthansa and Air France-klm.

The lack of a European oligopoly, and deep pandemic-induced cuts to the short-haul networks of legacy carriers, have left room for thrifty challengers to expand. 

Bernstein, a broker, expects Ryanair and Wizz Air, which have little debt and lots of cash to spend on new planes, to outfly European rivals in the next few years. 

So do investors. 

Both Ryanair and Wizz Air are worth more than before the pandemic.

Some of the likely winners may stumble. 

Delta and United have some way to go before they regain their pre-pandemic market capitalisations. 

A few other victors may emerge. 

One improbable candidate, according to Bernstein, is the unloved British Airways. 

Its parent company, iag, moved swiftly to slash costs, retire older and thirstier aircraft, delay deliveries of new planes and return leased aircraft with lots of unwanted premium seats. 

It is possible that network companies with passable finances and a good record, like Singapore Airlines, could eventually fly high again once international travel resumes. 

On July 5th a consortium of investors bet that long-haul flying would revive in time, by offering to pay $17bn for Sydney Airport, Australia’s gateway to the world, not too far below its stockmarket value in late 2019.

Challenger carriers could spring a surprise in America, where the three thriftiest ones—Allegiant, Frontier and Spirit—have doubled their market share to 10% in the past five years and together lost less than $1bn in 2020, compared with $45bn for American carriers all told, according to Keith McMullan of Aviation Strategy, a consultancy.

 JetBlue, another American low-cost airline, plans to introduce transatlantic flights on long-range narrow-body jets that are far cheaper to operate than wide-bodies that typically ply such routes.

Despite the fog of uncertainty, some upstarts are rolling out of the hangar. 

Breeze, which flies between smaller American cities overlooked by other carriers, and Avelo, which brings tourists to California, are taking advantage of cheap aircraft, plentiful pilots and available slots at once-crowded airports. 

Catching up with high-flying American and Chinese oligopolists, or with the cheap and cheerful European firms, is not impossible. 

But it will take skilful piloting. 

Vatican rocked

A cardinal goes on trial

Not something you see every day

Vatican scandals are nothing if not colourful. 

The latest involves claims of extortion, a kidnapped nun, and a security expert alleged to have frittered prodigious amounts of the Holy See’s money on luxury goods and services.

On July 3rd a Vatican judge sent ten people, including a cardinal, Angelo Becciu, for trial on charges including embezzlement, abuse of office, extortion and fraud. 

All deny wrongdoing. 

The news was overshadowed by the following day’s announcement that Pope Francis was undergoing an operation to remove part of his colon. 

But it is the trial, due to open on July 27th, that is likely to leave a more enduring mark on his pontificate.

Cardinal Becciu had been the second most powerful official in the Holy See’s bureaucracy, as deputy secretary of state, a friend of Francis and once seen as his possible successor. 

Among his fellow defendants are the former president and director of the Vatican’s financial regulator. 

The indictments suggest Francis will spare no one in his determination to cleanse the Vatican’s murky finances. 

But they also raise questions about his methods.

The prosecutors have wound three strands into one trial. 

The first, which prompted the cardinal’s dismissal last year, relates to his payment of €100,000 ($118,000) to a diocesan co-operative run by his brother. 

The second concerns his relationship with Cecilia Marogna, whom he hired as a consultant and into whose firm his office allegedly funnelled €575,000. 

The money was meant for operations that included securing the release of a nun kidnapped in Colombia. 

The prosecution says much of the cash was spent at places like Prada and Louis Vuitton and in spas.

Central to this tangled skein is a property deal. 

Cardinal Becciu is alleged to have inspired the Secretariat of State’s investment of €350m in a commercial property in London. 

Structured in a highly complex way, the money was invested through a fund operated by a London-based Italian financier who is among those charged. 

The secretariat, using money largely donated by the faithful, originally took a minority stake. 

But, dissatisfied with the arrangement, it decided in 2018 to buy the entire property, and turned to another Italian intermediary, Gianluigi Torzi, who pocketed a €15m fee the Vatican’s prosecutors claim was extorted. 

The Vatican’s financial regulator, which became involved in negotiating with Mr Torzi, is accused of exceeding its remit and failing to report the transaction to the prosecutors.

Whether it is wise to put regulators on trial is one worry. 

Another is whether the defendants can get a fair hearing: their lawyers were given just 24 days to respond to a 487-page charge-sheet. 

A third is whether the Vatican is shifting the blame. 

According to Mr Torzi, the pope knew of his involvement; and that his right-hand man, the secretary of state, Cardinal Pietro Parolin, approved it. 

Tricky, your Holiness.