How meme stocks affected retail investors over the last 2 years

Yahoo Finance's Ines Ferré takes a look back on how meme stocks such as GameStop have performed since they went parabolic in 2021, plus how meme trades have changed how retail traders approach the stock market.

Video Transcript

RACHELLE AKUFFO: It's been two years since GameStop shares started going parabolic, spurred by retail traders piling into the stock and hedge funds forced to cover their positions. Retail investors look back on the moment, which took Wall Street by surprise.

Ines Ferré joins us now on this "meme-iversary" with more. Hey, Ines.

INES FERRÉ: Hey, Rachelle. And I spoke to several retail investors that took part in the meme-stock frenzy. Some of them have earned thousands of dollars from their trades. Others have not been so lucky.

I talked to one retail investor-- and I'll show you here on a full screen-- that told me he thought AMC was going to be the next Tesla. He bought at around $49 a share. He sold at a loss. And he said, "I was so stressed and I lost so much that my wife threatened to divorce me."

So meme-stock activity has waned, as we have seen. We're going to show you here a chart from Vanda Research that shows net buys, and those really peaked back in 2021. You had some peaks there in 2022. Vanda Research showing these net buys, which is buying minus selling in millions of dollars, and that's for GameStop, AMC, and Bed Bath & Beyond.

I also spoke to Tradier. That's a brokerage firm. Their CEO, Dan Raju, told me that the retail investor has really changed over the last couple of years. There's been the graduation effect. They've had to navigate volatile markets. And what they're seeing is that with accounts of more than $20,000 that those investors are more apt to take on more risk than the accounts that hold less than $20,000. Rachelle.

RACHELLE AKUFFO: And it can be really sobering trying to time these things, which is why, you know, we see so many wins and losses in this. But given all the research that you've done, are we going to see another meme-stock phenomenon develop?

INES FERRÉ: Not to the scale that we have seen with GameStop and AMC in the past, and that's according to everyone that I've spoken with. And that's not just because we are in a tighter monetary policy, right now, era but also because portfolios are down an average of 35%.

But I spoke to Vanda Research, and retail traders will appreciate this because we often hear online their criticism of how the game is rigged and they need to register directly their shares. And this is what Vanda researchers-- main researcher told me. He said that these strategies that were discovered by the masses, that the game has changed now, that it's not as easy as it used to be. You can't just pump up a stock and expect to get out in time. He said that there are smart hedge funds out there, that these fund managers have gotten smarter with the game, that they can front run the retail investor, that they can play the game faster and better, normally, than research-- than retail investors. And oftentimes it's the retail buyers on the losing end of this.

RACHELLE AKUFFO: Unfortunate. Well, a big thank you there. Ines Ferré for us.