Gamestop, AMC, or different meme shares have gone up. You may wish to promote
Gabriela Bhaskar | Bloomberg | Getty Images
If you’ve held shares in GameStop, AMC Entertainment, or other so-called meme stocks that have shot into the stratosphere lately, it may be time to take advantage of the gains and move on.
While it’s uncertain where these stocks will go from here in the short term, experts say investors should be prepared for them to fall back to earth at some point. On Thursday, GameStop’s stock fell 56% late this morning after closing at $ 347.51 on Wednesday. About a week ago the price was $ 42 and by the beginning of 2021 it was $ 17.25.
“If you’ve been fortunate enough to be on your way to the top, an exit strategy is vital,” said certified financial planner Doug Boneparth, president of Bone Fide Wealth in New York.
“It’s not what you did on paper, it’s what you actually have on your account,” said Boneparth.
Retail investors, led by those on the WallStreetBets Reddit chat room, have piled into stocks that hedge funds using a strategy called short selling are anticipating a decline. Basically, short selling means borrowing shares of a stock at a certain price, selling it, and then counting on to buy it at a lower price when it comes time to repay the borrowed stock.
There are reasons professional investors may sell certain stocks, which can include poor fundamentals and an outlook that generally does not suggest future growth. In these cases, regardless of how high the share price is due to demand, the underlying company’s financial data has not changed.
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Additionally, if a stock is trending down, it can be difficult to get out of at the desired price.
“If everyone runs to the exit and you place a market order to sell, you get the price the market will carry,” said Boneparth. “So if it falls quickly, the big question is when will your order be fulfilled.”
You can also place a stop loss order. This essentially means that if the stock drops below a certain price you set, you will sell. However, the price you get may not be the one that started the sale.
“When you’ve made money, that’s fantastic,” said Boneparth. “But at some point you have to move away from the circus that it is.”