Just When You Think the YOLO Trade Is Done, Another Meme Comes Along

(Bloomberg Businessweek) -- Although they may not age as well as a bottle of Bordeaux, you can think of the “meme” investments embraced by individual traders as coming in vintages. Each one gives you a flavor of a moment in 2021’s very weird market psychology.

The January vintage is best-known: GameStop, AMC, BlackBerry, and a handful of other hot nostalgia names that denizens of online chat boards were rooting for. The May vintage was all about Dogecoin, a virtual token bearing a shiba inu mascot that reached a record of about 74¢ that month. October 2021 moved on to a special purpose acquisition company tied to former President Donald Trump’s social network; November already has Avis Budget Group Inc. as well as Bed Bath & Beyond Inc.

Anyone who thought betting on inside jokes would end with GameStop Corp. missed the point. With the U.S. staggering back to some version of normal in the twilight of the Covid-19 pandemic, trading as a new great American pastime has endured. The fading of any individual meme name hasn’t doomed “you only live once”-style investing. At least, not yet. “Novice traders who made a lot of irrational trades are absolutely in love with investing—that love isn’t going away anytime soon,” says Tim Ghriskey, senior portfolio strategist at investment adviser Ingalls & Snyder. “The YOLO crowd is looking for the ‘new’ new thing, and what’s considered new is constantly evolving.”

In mid-October you’d have been forgiven for believing meme investing was beginning to subside. Rank-and-file employees were returning to office towers and had less freedom to spend daytime hours trading. Reopened movie theaters, bars, and sporting events gave people other entertainment options. Barstool Sports founder David Portnoy’s Twitter feed, once littered with trading videos, went back to football commentary and pizzeria reviews.

AMC Entertainment Holdings Inc., while still way above its price at the start of the year, was down a third from its summer peak; Dogecoin had fallen by two-thirds. Large brokerages catering to individual investors—including Charles Schwab Corp. and Robinhood Markets Inc.—saw trading activity slow down in the three months through September. Trading in call options among small investors also declined. These contracts, which allow traders to use leverage to amplify their potential gains and losses on a stock, were the fuel for a lot of this year’s speculation.

The pseudonymous founder of Litquidity Capital, a meme-slinging finance satire account, said he was starting to feel his fun-money portfolio of YOLO stocks becoming a little ho-hum. LitCap YOLO I, which followers can track on social investing app Iris, includes GameStop, Dogecoin, and more than a dozen other names that went viral this year. The fund was up about 5% for the year before markets opened on Oct. 20—paltry in comparison with the S&P 500 index’s 20% gain to that point. Reached by phone during a walk in Central Park, the founder, who goes by Lit, said the portfolio had started to lose some of its zeitgeist-y luster.

Less than 24 hours after that conversation, things changed. Trump announced plans to merge his not-yet-running social media platform with the blank-check company Digital World Acquisition Corp., and the shares skyrocketed 357% on Oct. 21. Litquidity took note, snapping up shares for the YOLO account and firing off a message about how much things had changed in the space of a single trading day.

Swift shifts in sentiment can be a challenge for the companies ministering to the whims of retail traders. Robinhood saw trading swell during the rallies of GameStop and Dogecoin, the only novelty token it lists on its trading app. But the Menlo Park, Calif.-based brokerage missed out on a more recent mania for Shiba Inu coin, because it doesn’t list it. Shiba Inu coin, minted last year, vaulted over Dogecoin to become the ninth-most-popular digital currency, with a market value higher than Robinhood’s own—at least on paper.

Meanwhile, Robinhood reported its crypto trading activity cratered 78%, to $51 million, in the third quarter from the preceding one. The company missed revenue estimates for the period, too. Although it had warned that a slowdown could be on the way, investors sent Robinhood stock down more than 10% after the results were released. Rivals Webull Financial LLC and the cryptocurrency app maker Coinbase Global Inc. both offer Shiba Inu coin. But Robinhood executives struck a more cautious tone, saying they needed to think carefully about what to list, because they didn’t want to give users access to any cryptocurrencies that regulators might consider unregistered securities.

“We’re going to be very careful,” Chief Executive Officer Vlad Tenev told analysts on a call following the earnings announcement. “We’re a regulated entity, and we’re hopeful to get some clarity soon on coins. So until then, we’ll continue to work with our regulators to hopefully land in a place where regulations allow for innovation.” That approach clashed with the demands of at least some of its 22.4 million customers. The top investor question for Robinhood management when the company reported earnings was about when the app would list Shiba Inu coin.

“You don’t want to be known as a brokerage firm that burns investors and urges speculators,” says Ghriskey, the strategist. “Robinhood is going through a big growth phase, and it’s never easy.” The company has already been under an intense spotlight about its practices this year. It was the popular trading platform for the first wave of meme investors, and it temporarily restricted the buying of GameStop and other equities when their volatility surged. Robinhood said this was because its clearinghouse, which records and settles its customers’ trades, demanded a huge deposit to cover the increased risk of those stocks. In testimony before Congress, Tenev faced questions from lawmakers about the incident, as well as about whether its free app was making risky trading more appealing to young investors.

Part of the longevity of YOLO trading points back to shifts in technology and accessibility that Robinhood, Coinbase, and other new platforms have ushered in. Only in the past six years has it become possible to view a message or meme on Reddit and purchase a related stock as lightly as you might impulse-buy a tie-dye sweatsuit on Amazon.com. Not only do investors pay zero trading commissions—they also rarely face a minimum investment and can often buy fractions of a single share or a single cryptocoin. It’s easy to take a flyer.

But what happens when the hype fades? Thomas Peterffy, the chairman of Interactive Brokers Group Inc., says he doesn’t anticipate one major event killing the meme trade. Instead, excitement around each investment will dwindle slowly, one by one. “Eventually those stocks will go down to the level those businesses deserve,” he says. “I don’t think there will be a trigger.”

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