A rotation into cannabis stocks by retail investors has a lot more room to run as the latest meme-stock rally fades, research firm says

Tilray cannabis marijuana
A worker smiles as she shows cannabis plants at the Tilray factory.

  • Cannabis stocks may be the next area of attention for retail investors as a recent rally in meme stocks fizzles, says Vanda Research.
  • Inflows for Tilray and Sundial Growers have picked up this week.
  • “Retail purchases of meme stocks probably peaked on Wednesday,” said Vanda.
  • See more stories on Insider’s business page.

The meme-stocks rally that’s propelled AMC Entertainment up more than 2,200% so far this year is showing signs of exhaustion, but a recent pickup in buying of cannabis stocks including Tilray suggests that space could be the next center of attention for retail investors, according to a research firm.

“Retail purchases of meme stocks probably peaked on Wednesday,” said Vanda Research on Friday, noting a slowdown in net inflows into shares of AMC, the top recipient of retail investment money in recent weeks. Its rally has carried through to GameStop, BlackBerry and other stocks favored by retail investors active on social media such as Reddit’s Wall Street Bets platform. Vanda monitors retail trading activity in more than 9,000 US stocks and ETFs.

Meanwhile, inflows of $28.6 million into shares of cannabis companies Tilray and Sundial Growers on Thursday were the strongest since earlier rallies in the first quarter of the year. That marked the first clear signs of a rotation out of meme stocks, said Vanda. There was also a significant pick-up in retail flow on Friday for Tilray, Sundial and Cronos, three of the largest cannabis stocks traded in the US.

Meme stocks bounced back into the spotlight for retail investors in late May as bitcoin and other cryptocurrencies were crashing. AMC shares began to surge after major shareholder Dalian Wanda Group sold almost all of its remaining stake in the company. Redditors cheered the newly available shares and flexed their newfound weight in the market.

While meme stocks are still heftier in value than weeks before, the rally was starting to fizzle with AMC shares pulling back. AMC on Wednesday had $66 million in new inflows, less than half of the $136 million mln it had averaged in the previous two sessions, said Vanda. BlackBerry picked up some of the slack by drawing in $110 million for its largest day of retail buying in 2021.

However, “as opposed to BlackBerry, we think the rotation into cannabis stocks has a lot more room to run,” said Vanda, adding that Sundial and Tilray were the fourth and seventh-most active tickers on WallStreetBets forums on Thursday.

Tilray and Sundial jumped during the week after Amazon said its public policy team will back the Marijuana Opportunity Reinvestment and Expungement Act of 2021. The MORE act would, among other actions, end criminal penalties for anyone who sells cannabis in states where it’s legal.

“Despite the low chances that the Act is passed in the Senate (due to the filibuster), increasing media coverage is likely to attract the attention of the average retail investor,” said Ben Onatibia, a senior strategist at Vanda.

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Ask an analyst – our columnist answers your questions about how novice traders can thrive in financial markets

Stock Market Bubble
A trader blows bubble gum during the opening bell at the New York Stock Exchange (NYSE) on August 1, 2019, in New York City.

  • Insider’s new “Ask An Analyst” column offers novice investors advice on how to succeed with stocks.
  • Ryan Paisey is a veteran with nearly 20 years’ experience on the markets.
  • Find out below how you can submit him questions.
  • See more stories on Insider’s business page.

Retail investors – everyday people who buy stocks – are more important than ever in trading.

In January, Redditors saved bricks-and-mortar video game chain GameStop from being shorted, tanking Wall Street veterans in the process.

They have since also piled into cryptocurrencies, driving “meme token” Dogecoin to record highs and pumping up the value of anything from silver to lumber.

Hedge funds can no longer look down on them as people who follow the leader.

But lowering the entry barrier to the stock market has meant a lot of novices are trading money they cannot afford to lose.

Insider is launching Ask An Analyst – an advice column that aims to make you a better trader with straight forward responses to basic questions.

Read the column: How to find stocks with the most growth potential

This isn’t about listing stock picks. If you’ve wondered “how much research should I be doing on a stock? What am I doing right? What am I doing wrong?” this is the column for you.

Our columnist is Ryan Paisey, a veteran trader who has been in markets for nearly 20 years, and runs trader news service PriapusIQ.

“For too many players, the basic knowledge of the games we play are lacking, they are more concerned with guessing ‘up or down’ than understanding the basics which can immeasurably help improve their decision making process,” he says.

“I’m not here to tell you how to trade. I am here to share my 20 years of experience with those that have questions which only experience can answer.”

To submit your question, email jsommers@insider.com with “Ask An Analyst” in the subject line.

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A stock analyst says Mudrick Capital’s AMC purchase and quick sale shows Wall Street insiders are ‘preying on the naivete’ of meme-stock traders

AMC Entertainment
  • Mudrick Capital’s purchase and then quick sale of AMC stock shows retail investors aren’t the only ones making money during the latest meme stock trading frenzy, said David Trainer, CEO of investment research firm New Constructs.
  • Trainer called the hedge fund’s quick profit an example of “institutions dunking on retail investors.”
  • He acknowledged that there are also retail investors profiting from the sale, but says the trading is risky and investors should take profits now.
  • See more stories on Insider’s business page.

Mudrick Capital’s purchase and subsequent quick sale of AMC stock shows retail investors aren’t the only ones making money during the latest meme stock trading frenzy, said David Trainer, CEO of investment research firm New Constructs.

Mudrick Capital sold all its stock in AMC Entertainment Holdings Inc. for a profit on Tuesday, the same day the movie theater chain disclosed the hedge fund had bought $230 million worth of shares, Bloomberg reported. The firm then went as far as to call AMC’s stock overvalued in the aftermath. The move didn’t sit well with Trainer.

“A blatant example of institutions dunking on retail investors comes from the Mudrick Capital trade,” he told Insider. “They bought 8.5 million shares from AMC and turned around and sold it directly to the public for a quick profit.”

The meme trading frenzy isn’t an example of retail investors “beating” institutions as there are still institutions profiting from this as well. While there are a handful of retail investors getting rich, institutions like Mudrick as well as brokers who collect fees from the trading frenzy are also drawing in money, Trainer said.

“Wall Street insiders are preying on the naivete of retail meme stock traders,” Trainer said in an email.

His message for retail investors who’ve gotten in on the AMC trade?

“Take the gains you’ve made right now to the bank, don’t try to time the market.”

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An ‘all-stars’ ETF designed to track the stock market’s most popular themes is in the works, new report says

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  • An fund called the Thematic All-Stars ETF is in the works for investors seeking a vehicle designed to track the stock market’s hottest themes.
  • This passively managed fund will be launched by Amplify ETFs, sponsored by Amplify Investments.
  • The fund will not allow a company to make up more than 5% of its overall holdings.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

For investors who want to put their money in the hottest investing themes, a new exchange-traded fund may the answer for you: the Thematic All-Stars ETF.

These thematic segments include disruptive technology, evolving consumer, fintech, health care innovation, industrial revolution, sustainability, among others.

Currently in the works, this passively managed fund will be launched by Amplify ETFs, sponsored by Amplify Investments, which has over $4.7 billion in assets across its suite of ETFs as of March 2021, Bloomberg first reported.

Amplify ETFs filed a prospectus with the US Securities Exchange Commission dated April 28 to launch Amplify Thematic All-Stars ETF.

“The thematic universe includes all ETFs that meet the index provider’s proprietary classification requirements, which are designed to identify ETFs with strategies seeking to capture investment opportunities,” the prospectus said.

But unlike many other funds, the Thematic All-Stars ETF will not allow a company to represent more than 5% of its overall holdings.

Any excess weight will be prorated among remaining constituents, the prospectus said. As of writing, the index contained 160 stocks, which will be reconstituted and rebalanced monthly at the close of the first Friday of each calendar month, the prospectus added.

If approved, the fund will join a list of growing ETFs that have recently debuted to cater to the growing appetite of investors following the GameStop mania driven by Reddit’s Wall Street Bets forum in January.

For instance, an ETF called FOMO, which aims to invest in current or emerging trends, was filed with the US Securities and Exchange Commission in March, intending to alleviate investors’ fears of missing the next big thing.

“With ETF markets booming during the coronavirus pandemic, millennials have also been a key driver to the sector’s growth,” a Finbold report said. “In this case, young people who are not familiar with the operations of the financial markets are well-served by using a passive income management approach, and ETFs offer the solutions.”

The assets under management of the10 largest ETFs surged 47.56% to $1.69 trillion between March 2020 and April 2021. In the past year, these funds added $546.63 billion, according to Finbold.

Read more: Jefferies unveils 14 stocks with exposure to the booming NFT opportunity as digital collectibles continue to become more mainstream despite the recent price slump

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Company executives are reportedly using Clubhouse to woo individual-shareholders as retail investors become a stronger force in the stock market

clubhouse app
  • Corporate execs are using audio-conferencing app Clubhouse to directly talk to retail investors.
  • It’s a move to recruit more individual stockholders after decades of mutual funds dominating portfolios.
  • CarParts.com used Clubhouse to field questions from retail investors after its earnings report, per the Times.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Corporate executives are using audio-conferencing app Clubhouse to directly communicate with retail investors, according to reporting from the New York Times’ Matt Phillips.

After hosting a post-earnings report conference call with Wall street analysts, executives at CarParts.com turned to Clubhouse to field questions from a group of over 2,000 listeners, the Times reported. Audience members asked questions like: How does the business work? Are CarParts.com shares worth buying?

It’s a move that appears to be an effort to communicate more directly with retail investors and recruit more individual shareholders after decades of mutual funds dominating investor portfolios.

CarParts.com’s chief financial officer and chief operating officer called the Clubhouse session an experiment.

“We’re trying to disrupt the way people fix their cars,” he told the Times.”Is there a way for us to disrupt how retail investors communicate with management?”

Retail investing boomed in 2020 as people stuck inside their homes and fueled with extra stimulus cash turned to commission-free apps like Robinhood during the pandemic. The amount of individual stock ownership also grew to the highest level since 2014. According to the Federal Reserve, American households bought roughly $211 billion in individual stocks last year.

Whether that trend of individual stock ownership will continue could depend on the investor fanbase that companies build, and Clubhouse is one avenue executives are using to get closer to retail investors.

Though a recent note from JPMorgan’s global markets strategy team says that US retail investors are rotating away from buying individual stocks and stock options and towards buying more traditional equity funds, as was the case before the pandemic.

During the first week of April, stock ETFs saw strong inflows of $18 billion, JPMorgan noted. Meanwhile, measures of call option buying that rose to a record high in January have begun to subside over the past two months, a sign that retail investors are less willing to invest in call options on individual stocks. Similarly, JPMorgan found that equity baskets containing stocks popular with US retail trading platforms have also slowed over the past two months.

JPMorgan noted that monitoring retail flows into equity funds will be an important metric for determining the state of the individual stockholder.

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Bullish options trading has been declining over the last month as retail investors focus their attention on the economic reopening, Deutsche Bank finds

NYSE Wall Street coronavirus
  • Bullish options activity from retail investors has started to decline in recent weeks, Deutsche Bank strategists said.
  • The decline in options trading has coincided with an uptick in mobility indicators, restaurant bookings, and air travel.
  • It’s a sign that the retail-trading frenzy may be dying down as the economy re-opens.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

After heightened activity in 2020, the volume of bullish options trading has fallen since late January in a sign that retail investors are starting shift their attention, according to a team of strategists from Deutsche Bank.

In a Friday note, the strategists said that the size of call options trades that have risen and now fallen are small, indicating that they’re driven by retail investors. This comes as Wall Street begins to question whether the stay-at-home retail trading frenzy that was seen most prominently during the GameStop short squeeze will die down as the economy reopens and investors spend their money and time on other activities.

Deutsche Bank data also showed that mobility indicators, restaurant bookings, and air passenger traffic have all risen significantly in recent weeks as retail call volumes decline.

“This jives with our view that as retail investors have other things to do, the attention focused on the equity market will start to fade,” the firm said.

The options activity decline has also dragged down a basket of stocks with the highest call exposures that Deutsche Bank tracks. The group of stocks soared 160% in just over three months since November. However since mid-February, the basket has tumbled 24%, compared to the average stock in the S&P 500, which is up slightly in the same time period.

Although a lot of firms predicted that retail investors would put a large chunk of their stimulus money into stocks, Deutsche Bank found that two-thirds of those payments have already been distributed, implying that the impact of stimulus should start to fade in the market.

The analysts also noted that as these call volumes decline, stock market volatility may also trend lower. This could prompt systematic investors to raise already elevated allocations to stocks to record high levels, according to the strategists.

options activity

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Many Americans are turning to Reddit for stock tips after Wall Street Bets captivated markets during the GameStop saga

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Reddit logo.

Among the many aftereffects of the GameStop saga earlier this year is an increased interest in Reddit as a source of stock picking advice and investing tips, a recent survey shows.

A survey by Travis Credit Union conducted between February 15 to March 2 among 2,052 Americans revealed that 70% who said they invest look to Reddit for stock tips.

“Today, there’s a lot of positive energy around the stock market as a new generation gets involved through new technology,” said Andy Kerns, Creative Director at Digital Third Coast, which managed the survey for Travis Credit Union.

As for their favorite trading platform, 39% said it was Robinhood, followed by E-Trade at 19%, WeBull at 12%, and Fidelity at 10%.

A majority said they check their accounts daily, while 32% check theirs weekly.

Among all the respondents, 1,275, or 62%, said they have invested only recently. Most said they used what they called “extra spending money,” though one in four surveyed said they invested less than $500.

The rapid rise of retail investors has been a powerful force in the stock market, enabled by a range of factors including commission-free trading, distribution of government stimulus checks, and heightened pandemic boredom as many people continue to work from home.

While more than 57% who were surveyed think the boom in retail trading was “great,” around 10% found it “problematic.”

The retail investing trend hit a fever pitch in January, when an army of retail traders coordinating on Reddit’s Wall Street Bets forum sparred with short-focused hedge funds and pushed their favorite stocks higher.

Read more: Buy these 15 stocks that are set to surge as companies invest their near-record amounts of cash on massive infrastructure projects and technologies, Jefferies says

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Over 50% of US investors think the stock market is rigged against individuals, a Bankrate survey finds

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A woman walks past the New York Stock Exchange (NYSE) at Wall Street on November 16, 2020 in New York City.

  • 56% of investors surveyed by Bankrate say they strongly agree or somewhat agree that the stock market is rigged against individual investors.
  • Meanwhile, 41% of Americans surveyed who don’t have any money invested in the stock market also agreed with the notion.
  • The survey sheds a light on recent retail investor sentiment following the Reddit-driven trading surge in January.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Over half of US investors think the stock market is rigged against individuals, according to a survey of 2,525 Americans from Bankrate.

In a February study, 56% of investors surveyed and 41% of non-investors either “strongly agreed” or “somewhat agreed” with the statement: “The stock market is rigged against individual investors.”

Overall, 48% of American adults surveyed either somewhat or strongly agreed with the statement. More than 18% strongly agreed with the statement, and roughly 29% somewhat agreed. Meanwhile only 13% disagreed with the statement, with the rest remaining neutral.

The results come after the Reddit-driven market frenzy in January that saw Robinhood halt trading of many “meme stocks” stocks, prompting retail investors to argue they’re at a disadvantage.

The Bankrate survey revealed that more than 39 percent of American adults had no money invested in the stock market either before the pandemic or currently.

Other findings include:

  • 20% of investors said they’re investing more now than before the pandemic, with younger investors adding more than older cohorts.
  • 39% of American adults had no money invested in the stock market before the pandemic or currently.
  • Investors who identified as Reddit users were more than twice as likely to invest more now than less now compared to pre-pandemic.

The Bankrate study was conducted via online interview by YouGov Plc from Feb 24-26 2021. 2,525 adults were surveyed and data was intended to be representative of all US adults.

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More GameStop-like short squeezes could be up ahead in the ‘fragile’ stock market, says a market research veteran

GameStop Clerk
  • The GameStop short-squeeze that shook markets in January probably won’t be the last of its kind, according to Wellington’s Owen Lamont.

The GameStop short-squeeze that shook markets in January probably won’t be the last of its kind, according to Wellington Management’s Owen Lamont. 

The market researcher said he anticipates more short squeezes in the future in illiquid names and “little corners of the market,” on an episode of the Exchanges at Goldman Sachs podcast published Wednesday.

“It seems to me that we’re in a market where prices are moving a lot. It’s probably not that horrible if a couple stocks every now and then go crazy. But I’m more concerned about the whole system being fragile,” he said. 

The price of GameStop’s stock surged in January after investors rapidly purchased shares of the highly-shorted video game retailer, causing short sellers to close their positions and drive the stock’s price up even higher. Lamont said this squeeze was different from ones throughout history, like Volkswagen in 2008, because GameStop’s price was driven up by “many small traders,” as opposed to a few large players. 

“The events of January just made it seem like our system is more fragile,” Lamont said on the podcast. 

He emphasized that short-squeezes are rare in well-functioning, liquid markets, and there shouldn’t be a scenario in which prices are moving so much in response to sentiment changes. 

The long-time academic researcher explained the concept of “noise trader risk,” where traders make market prices move round but rational traders who don’t want to bear the risk exit. 

“In that story, volatility begets volatility,” Lamont said. “And the crazy prices in volatility are a self-reinforcing cycle. So, I’m not sure whether it’s the illiquidity that’s causing the volatility today, or the volatility that’s causing the illiquidity. But somehow, we’re in a situation where market prices, at least in a handful of names, seem out of whack.”

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Legendary investor Jeremy Grantham says the stock-market bubble could burst before May in a new interview. Here are the 16 best quotes.

jeremy grantham
Jeremy Grantham.

  • Jeremy Grantham said the stock-market bubble would likely deflate before May.
  • The GMO cofounder also criticized SPACs and cheered electric vehicles.
  • Here are Grantham’s 16 best quotes from his “Invest Like the Best” interview.
  • Visit the Business section of Insider for more stories.

Retail investors piling into stocks have fueled a historic bubble that will probably burst before May, the veteran investor Jeremy Grantham said on the “Invest Like the Best” podcast this week.

The GMO cofounder and chief investment strategist also discussed how the bubble would deflate, slammed SPACs, shared some of the insults he’d received for criticizing bitcoin, and predicted that electric vehicles would revolutionize the auto industry.

Here are Grantham’s 16 best quotes from the interview, lightly edited and condensed for clarity:

1. “This bubble is more impressive even than 2000, which was the champion. About 80% of the value measures have this one higher. We’ll be rather lucky to have this bubble last until May.”

2. “When the financial headlines migrate to the front page, when the evening news mentions the market or some crazy behavior of GameStop, Tesla, you know you’re getting very warm.” – outlining some of the signs of a bubble about to burst.

3. “This is not primarily an institutional bubble; this is an individual bubble. The individuals are absolutely crazy. They have expanded their share of the market trading, and they have really entered into the market with great enthusiasm for the first time in decades.”

4. “I have to confess that I find it all exhilarating. I’m only concerned somewhat for the relatively new investors who get drawn into these things and then find out the hard way. I sympathize completely with these people out there enjoying this bubble, but they’ve always ended very badly, and I have no doubt this one will too.”

5. “I’m not optimistic that anyone caught up in this wants to hear my advice and consequently would act on it. When you get into that excitement, mini frenzy, pretty hard to stop you with dry historical stories. ‘That was then, this is now, baby! Get aboard. You don’t understand. You dinosaurs don’t get it.’ Well, the trouble is we do get it, but there is no way I can persuade them. Just tread out the regular story, and one out of a hundred might listen. I will sympathize with them when they’re cleaned out.”

6. “We’re a crazy marketplace full of irrational human beings who behave themselves 80% of the time and then 20% of the time totally freak out one way or the other.”

Read more: The world’s top investment firms pay Rob Arnott for advice. He shares 2 investing ideas that could go down as ‘the trade of the 2020s’ as the world bounces back from COVID-19.

7. “They don’t want to look foolish with their neighbor, and I concede that seeing your neighbor get rich is about as irritating as anything that life has to offer.” – discussing how retail investors get caught up in speculation.

8. “The market tops out when the last bull has put his last money in. There is a moment of maximum enthusiasm, and the next day there’s plenty of enthusiasm but less than the previous day. So the buying pressure is released a little bit, like the famous water jets under the ping-pong balls. You turn the faucet down a little bit and the ball is still way up in the air, but it’s just dropped a couple of inches. It’s that process of slowly lowering the pressure, and the overpriced ping-pong ball slowly descends until it hits the proper level.”

9. “Rapidly rising hostility to bears is a very good, very late signal that the bubble is way advanced. I gave my fairly bland opinion about bitcoin, just that it was faith-based, there’s nothing new or shocking about that. But armies of individual fanatics descended on the comments. There was no insult that was not good enough for me, not just senility and old age and complete ignorance about bitcoin. I got three insults back about my big ears which I hadn’t had since I was 7 years old.”

10. “SPACs are terribly speculative, undesirable, unnecessary instruments. They’re really a license to rip investors off. It’s a testimonial to the sloppiness and slow-moving nature of the SEC that they haven’t banned these things long ago.”

11. “QuantumScape went from $10 to $130, where it was worth more than General Motors or Panasonic. That compares pretty well in scale with anything around in 1929 or 2000. To have a company that has no earnings or sales for four years, brilliant or not, and to look out that far into the future and make it worth more than General Motors, that’s a pretty good demonstration of something. And it was wonderfully ironic, because by then I’d already been sounding off about the undesirableness of SPACs. And there I am with far and away, for a second or two, my biggest investment ever.” – discussing his 53-fold gain on QuantumScape after a SPAC acquired the solid-state-battery company.

12. “I don’t believe the banks are nearly as important as they would love us to believe. They managed to fake the majority of people in ’09 into thinking they were so desperately important that if we didn’t bail them all out, if we let a single banker go out of business, we’d be deep in 1932, in the Great Depression.”

13. “The baby bust is going to be worse than anybody thinks, way off the scale of anything we’ve ever talked about. It’s going to change the world.” – emphasizing the effects of declining birth rates in many of the world’s largest economies.

14. “Electric cars will be cheaper to build. They’re already cheaper to run and cheaper to operate by far, and safer and better to drive. We have killed gasoline and diesel cars.”

15. “We’re compounding the wealth of society much more slowly. If you’re not in the game, just think how terrible it is: You pay twice as much for a house, the stock market is twice the price it used to be, the farm up the road if you’re in the countryside is twice the price it used to be. It’s glorious for the people who own a lot of assets, for old fogies who are selling their assets, that’s terrific. But everybody else, and particularly the young, it’s a pain in the ass.”

16. “For heaven’s sake, do the little that you can do to prepare for the future, which is to have a great infrastructure and a great educational system. Reality is the quality and quantity of your workforce. How motivated, how happy, how well-organized they are, how well-trained they are, and how well-retrained they are, if necessary, plus the quantity and quality of your assets per worker. That’s real life.”

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