Buying Crypto and Meme Stocks Is Akin to Gambling, Says Strategist

Buying cryptocurrencies and meme stocks like Trump Media is akin to gambling, believes Fiduciary Trust International’s managing director, Doug Cohen. 

In an interview with Quartz for the “Smart Investing” video series, Cohen discussed why these types of assets are too speculative to be considered sound investments.

Cohen explained that the behavior seen around meme stocks and certain cryptocurrencies is reminiscent of the market speculation observed in 2021. 

“It tells me there’s a fair amount of speculation out there and it’s very reminiscent of what we saw in 2021,” Cohen noted. 

The MD pointed out that while speculation exists throughout the entire market, meme stocks and crypto are especially prone to this, making them high-risk investments. 

He likened the situation to putting it on steroids when it comes to meme stocks, which can lead to drastic price swings in a short period.

“I Hate to Use the Word Gambling, But That’s Basically What They Are Doing” 

When discussing the sudden rises and falls in stocks like Trump Media & Technology Group’s recent meltdown, Cohen likened it to gambling. 

Donald Trump‘s media startup has taken investors on a rollercoaster, losing over $7 billion in value from its peak in May to its low in September, only to recover nearly $3 billion within a month.

Tuttle Capital Management’s chief executive officer, Matt Tuttle, called it “a meme stock that is solely valued on Trump winning, because if he doesn’t win it should be worth $0.”  

In recent news, several Polymarket bets, totaling $26 million and possibly coming from the same source, suggest that Trump has a significant lead over his Democratic counterpart, Kamala Harris.

Earlier this week, we also reported on the Las Vegas Review-Journal’s support shown for Donald Trump for the 2024 US presidential election standing by its earlier choices from 2016 and 2020. 

“I hate to use the word gambling, but that’s basically what they are doing,” Cohen explained, emphasizing that while some stocks may see short-term gains from news or market hype, they remain speculative and risky. 

“Any investor who’s looking to participate should just be careful,” Cohen advised. He also suggested that anyone who chooses to invest in these stocks should only use a small portion of their portfolio while understanding that significant losses are possible.

“Sometimes You Know It When You See It.” 

Cohen also addressed the difficulty new investors face in distinguishing between speculative and solid investments.

He offered a simple rule of thumb: “Sometimes you know it when you see it.” 

Meme stocks, he said, are often driven by online hype and posts on message boards rather than a company’s long-term fundamentals like management strength or balance sheet health.

The MD compared the current meme stock craze to the internet bubble of the early 2000s, where many companies saw dramatic gains, only to collapse when market sentiment shifted. 

Cohen warned that if the market’s risk tolerance changes again, similar sharp declines could occur, potentially wiping out much of the recent gains.