Meme stock mania is back in full force as billionaire investor Ryan Cohen sold his ten percent stake in Bed Bath & Beyond, pocketing over $60 million dollars in the process. Meanwhile, fellow meme stocks Gamestop and AMC tumbled alongside Bed Bath & Beyond. What should meme stock investors watch out for, and is this movement a sign that meme stocks are no longer just a pandemic-era fad? Peter Cohan, Associate Professor of Management Practice at Babson College, joins Closing Bell to discuss. 

Closing Bell

How to Protect Yourself in the Age of Meme Stock Mania

Welcome back to closing bell and cheddar news. Everyone. Kristen schiller down here on the floor of the stock exchange? Look, it may not be 2020 but means stock mania is definitely back in the headlines at this time? Led by frenzy around big box retailer Bed Bath and beyond. Last week, the company saw its biggest ever intraday percentage drop after top investor in Gamestop chair, Ryan Cohen dumped his stake, pocketing $68 million in the process. While the move comes months after he acquired a 10% share in the company and also pushed its board to explore changes like a spin off of its bye bye baby brand. Cohen's back and forth only adds to the turmoil the company as it was. His customers runs low on cash and operates without a Ceo. So joining me now is Peter Cohen, associate professor of management practice at babson College. Peter Thanks for joining. So it's good to have you such an important topic. I know, especially for retail traders. Has Ryan Cohen lost the trust of meme traders here? I'm surprised he ever had anybody's trust. I mean, clearly, you know, self interested, but you know, this is a phenomenon I've noticed in the generation of people who have kind of grown up playing video games. I mean playing stocks like meme stocks, this seems like a video game to me um where the payoff comes from, you know, the approval that you get from having people up vote your post. Um, but it's an expensive way to get up votes. I mean, couldn't you just play video games and forget about betting actual money on these companies where you don't really know what's gonna happen. Um It just doesn't make logical sense. Would you equate to to gambling peter? Yeah, I mean it's it's when you gamble you do get I think you get some kind of a psychological rush, I I'm not a gambler myself, but I think that it creates a sort of a rush of dopamine or other brain chemicals. Um But the problem here is that people are also betting real money um and they're losing a lot of money. And you know, the thing that troubles me is I was reading a story about somebody uh written in the end, I guess the the Financial times about somebody who uh was very very fortunate to have bought the stock of bed bath beyond at $5 a share road up last week's um you know, surge which seemed completely irrational to me and then sold right at the top and made you know, over $100 million which is gonna make a lot of people feel like, boy I can do that. Um So they're gonna they're gonna get sucked into it. So it is it is like gambling and the problem here is that people who are who are making these bets can't really predict what's going to make the stock move. But one thing about bed bath and beyond is that it's really in financial trouble and you know, just based on that, I would not recommend that anybody bet on that stock. Okay, this is super helpful. Clearly obviously these stocks are very volatile and I think what said there, peter was a key point. It can go up or down dramatically for any given reason. That's not necessarily completely transparent at any given time. And so Ryan Cohen, we mentioned here obviously the connection to Bed Bath and beyond as well as the Gamestop connection. What should investors retail traders be on the lookout for to see if this might happen as a repeating Gamestop stock? Well you can't really predict exactly what people are going to do, but I mean I would just say, you know, if you want to get a feel a feeling of having other people approve what you're doing do it in a way that doesn't involve betting money because you know, these are companies that I I I know that the, you know, the general storyline is that people are going along these these companies because they feel that they're gonna stick it to the people who are betting short, they're gonna they're gonna stick it to the hedge funds and then they're gonna, you know, really love it when the hedge funds buy and the hedge funds go out of this. Um that is not a good enough reason, I think to a significant portion of your net worth on one of these companies and I definitely don't think there's any easy signal that you can, you can use. I mean you can easily say, okay, well now we've seen that Ryan Cohen is going to, you know, drive up the value of the stock and then sell it just as it goes up. Um, and maybe he'll do it again. So don't get involved in any stock that Ryan Cohen is involved in, but you just don't know if he's going to do that with every single, there's no simple rule that you can use, I think to protect yourself, stay away from actually betting money on these things or if you do that, make sure that you're very comfortable losing all the money. I know that is the harsh reality. So let's run through some of these meme stocks, Peter Bed Bath and beyond. And you mentioned it has a rocky financial balance sheet right now. Rocky outlook to say the least. Am see another mean stock that's been on the move of like Gamestop obviously as well among these three companies. Do you think there's any hope that the businesses can actually turn around that perhaps over the long term, let's say you did buy in at a cheap price. Maybe it is worth holding onto your shares for the long run from here. Okay, that, that's an interesting question and they are different. Um, well Bed Bath and beyond would be the one I would definitely stay away from. Um, I'm really very skeptical about Gamestop game stuff. I don't know why people go into physical stores to buy games anymore. I mean they just download it all. I just, I just don't see the logic. I don't see the business there. Uh, you know, I will say with A. M. C. You know, people were going back into movie theaters after they didn't have to wear masks and so on. But I mean there's just this other movie theater that you know says it's going to file for bankruptcy. It makes you realize that, you know, you know, going going to movie theaters is something that people may not see any real reason to do it anymore. Obviously they can watch movies on their hands, devices on their smart TVs. Going to a movie theater doesn't strike me as something that is going to become a great business and the company is burning through cash. It does have more cash reserves and other companies, but I just don't see it as becoming, you know, a long term good business. I don't like any of them. All right. Peter Cohen, associate professor of management practice at Babson College. Peter, thank you so much for joining