Diamond Hands vs Paper Hands: Why Meme Stocks Don't Make Money

The story of Beyond Meat once again proves a harsh reality: retail investors can drive bad stocks to the moon, but the ceiling is right there.

What Happened

In October this year, BYND sparked a frenzy on social media due to the conversion of bonds into shares (316 million new shares), soaring 1400% in a week. It looked great, but after peaking on October 22, it directly dropped by 79%, only selling for a little over 2 at the end of the month.

In this wave of speculation, the daily trading volume reached 2.2 billion shares—what does this mean? Each stock changed hands more than 5 times on average. The data clearly shows: the vast majority of people are short-term speculators, and are not “diamond hands” (long-term holders) at all.

Why the Diamond Hands strategy has failed here

Diamond Hands is an old meme from the GameStop movement – no matter how much the stock price drops, just hold on tight. This logic does work with “good coins” (for example, Nvidia has dropped over 50% twice in the past 10 years, but has explosive long-term gains), but applying it to junk stocks is completely suicidal.

Beyond Meat, AMC, and GameStop are all the same type of thing: well-known consumer goods companies + financial difficulties + high short positions. The fundamentals of these stocks are terrible, and once the hype dissipates, the stock prices will drop like water.

The Real Revelation

Diamond Hands essentially represent a long-term compounding strategy, but the premise is that you are holding companies with growth potential. If you apply “diamond hands” to a company that is losing money, experiencing declining sales, or has a broken business model, then that is not investing; that is gambling.

The same strategy, but choosing the wrong target results in vastly different outcomes.