Why Buying Clover Health Is Worse than Gambling

Would you like to be up 34% in a stock … in just 30 minutes?

two playing cards, an ace of spades and a king of spades, leaned against a stack of black and red poker chips. represents gambling stocks.
Source: shutterstock.com/Dugger94621

Of course you would.

Would you like to be down 20% in a stock … in just 30 minutes?

Of course you wouldn’t.

Well, that’s exactly what happened the last two days with the latest so-called “meme stock.”

Memes are most often images or videos that go viral, often expressing some idea. They can be inspiring. They can be funny. They can be downright mean.

Here’s one thing they cannot be … an investment.

That’s why today’s MoneyWire is a critical public service announcement from me to you. Please read on before it’s too late…

The stock I mentioned is Clover Health Investments (NASDAQ:CLOV), one of the latest meme stocks to trade insanely.

If you bought it at 3:30 yesterday and sold at the open this morning, you’re loving life after a very profitable 30 minutes of trading.

But if you bought at the open and sold at 10:00, you’re not so happy … down 20% also in 30 minutes.

Same stock. Same amount of trading time. Very, very different outcome.

And therein lies the problem with meme stocks.

A meme stock is a stock that has gone viral on social media or a forum like Reddit. Buyers flock in. The price soars. Volume goes through the roof. Short sellers get crushed.

And everybody else? Well, it’s basically the same as gambling and whether you’re lucky enough to hit it at the right time.

Actually, it’s even worse than gambling — and this from a guy who likes to go to Las Vegas and gamble, and who loves betting on sports. But here’s the difference…

I view it as entertainment. I’m prepared to lose money while I enjoy myself. If I win, it’s a bonus.

It is not investing.

I know there are some professional poker players that do well, but they put thousands of hours into learning their craft and have systems that give them an edge. I’d be extremely surprised if more than 0.1% of investors buying these meme stocks put thousands of hours into reading stock charts.

And here’s the thing … If you did, you still would never have bought Clover! What’s happening is so insane and so random that it doesn’t fit any pattern.

Clover Health closed today at $16.92, down 23% after rising 86% yesterday. From here, it has just as good a chance of going to $40 as it does to $10. You can’t make a rational decision based on that.

I am not bashing the Reddit crowd that singles out stocks and encourages people to buy them. I am also not sticking up for Wall Street. I am thinking about the average investor.

One of my biggest concerns is that people coming into the market for the first time, especially younger people, will think this is normal. We know they are getting drawn in by this viral investing. Brokerages are seeing a surge in new accounts. When these new investors get burned, as we know they will, I am afraid they will give up on stocks altogether.

That would be a tragedy because the stock market remains the greatest way for the average American to make money. I would absolutely hate to lose a generation of investors for what amounts to gambling.

I am all for “taking down the man” as much as anybody. I am as anti-Wall Street as anybody who invests in stocks professionally. I am as anti-financial media as can be for someone who was in the financial media. But this isn’t the way to do stick it to the man … not if more people will get hurt more severely than “the man” himself.

So, my public service announcement to you today is this: Please do not try to invest in meme stocks. If you want to have a little fun and throw money in you’re happy to lose, go for it. But this is not sustainable over time.

Meme stocks are not for your hard-earned money that you need to work for you — to pay for your retirement, your kids’ or grandkids’ college education, your vacation home and so on.

Think about this, too. You know darned well that the people who get a stock like Clover going on Reddit and get the crowds behind it also own shares. And when the bandwagon investors bid the stock higher and higher, chances are the folks who started it all are cashing out and looking for the next opportunity. They are basically creating their own legal “pump and dump.”

Gamble if you want, but please don’t confuse it with investing.

When it comes to your investing dollars, you want to focus on the best companies working in hypergrowth trends that are transforming our world and taking us all to a better future. Trends that are massive, unstoppable, and will continue to play out for years.

Putting your hard-earned money to work in these kinds of stocks is investing. It’s based on research, analysis and probability. It is a calculated risk … and the calculation extremely favorable.

The convergence of innovative technologies like artificial intelligence, 5G wireless, precision medicine, the Internet of Things, driverless cars and the blockchain are recreating the very framework of modern society.

The impact these technologies will have on the global economy will dwarf the internet.

On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.


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