SEC Warns Against Meme Stocks

Armstrong Economics Blog/Trading Re-Posted Jun 6, 2022 by Martin Armstrong

The Securities and Exchange Commission (SEC) is warning investors against popular “meme stocks.” Yet, they have gone too far by offering direct trading advice. Specifically, the SEC produced a video (see below) about GameStop (GME) that has retail investors reeling.

GameStop was certainly trading in volatile territory during Q1 2021. A group of online retail investors promoted the stock and allegedly were partially responsible for causing Melvin Capital hedge fund to lose 53% of its capital in January. The short squeeze seems to be highly exaggerated and the four largest asset managers in the world owned 39% of GameStop at the time. Those who traded properly, or simply got lucky, profited off of the volatility, but, obviously, that is not recommended for the amateur investor.

The problem here is that the SEC is trying to deter the retail investor to protect the hedge funds. The SEC should not be telling the public which stocks to avoid and I do not believe the shareholders of GME or other “meme stocks” will be happy with this advice.

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