As a teenager I belonged to a Las Vegas magic club where professional local performers donated their time to teach us the tricks of the trade. One of the guiding principles of magic I learned was that of misdirection. This is the skill used by magicians to make the audience pay attention to one thing, while the real trick is happening somewhere else. This is exemplified by the old phrase “Watch me pull a rabbit out of my hat.” What the magician is really saying is “Don’t pay attention to what my other hand is doing.” Because of my training I have the habit of looking for that rabbit everywhere but where the magician wants me to look.
Last week I wrote about the new Meme stocks that are capturing much of the attention on Wall Street. Every day the morning market headlines are filled with stories about these companies. As a result of all this press, a lot of money has been flowing to these often-over-priced companies, and a significant amount more is spent trying to figure out who the next hot meme might be. Watching this behavior, my magician training has kicked in causing me to wonder if a little misdirection might be happening right before our eyes on Wall Street.
Investors should understand that there is a certain amount of money available to be invested and as it moves toward one company or sector, it moves away from others. As these hot topic meme stocks take center stage, much of the markets’ attention and money is focused on them. As this drives up their prices to sometimes unbelievable highs, it is also drawing money away from other areas. This is leaving long-time strong businesses with solid products and huge future potential with stagnating stock prices.
Now it is certainly possible that some of these meme companies will become profitable, but the math works against most of them at current prices and I suspect that in time those usually impatient dollars will start looking for another place to be. Like a magician focusing the audience in one direction while the real action is happening somewhere else, I feel like the market is telling everyone to “watch carefully as I pull a rabbit out of this hat” (a good analogy for a meme stock) when the real deal is happening somewhere else. In other words, some of the best companies are being overlooked, opening an opportunity for long term investors who are smart enough to not let their attention be mis-directed by a deceptive market.
I suggest taking a week to skip any news regarding high-priced meme stocks and look instead for those real bargains that are lurking behind the magicians’ curtain. I believe some of the current excitement is intentionally designed to direct our attention one way, while opening up wonderful opportunities elsewhere if we take the opportunity to look for that hidden rabbit.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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