Doug Cohen, Managing Director of Fiduciary Trust International, speaks with Quartz in the latest installment of our “Smart Investing” video series.
Watch the interview above and check out the transcript below. This transcript of the conversation has been lightly edited for length and clarity.
Andy Mills (morning): So [Trump Media] It goes up and down, acting like a meme stock. What are the people chasing meme stocks saying about the current market?
Doug Cohen (DC): That shows there's a fair amount of speculation out there, and it's very reminiscent of what we saw in 2021. And at least it didn't end well as we head into 2022 with a changing market environment. So whether it's cryptocurrencies or meme stocks, they are an element of speculation.
And look, there's speculation all over the market. I think some of the leading growth stocks, even some of the AI-oriented darlings, are clearly in a very different realm than meme stocks in terms of overall fundamentals, balance sheet strength, and everything else. think. However, there is still some speculation and momentum. And, as we've seen many times in the past, it will continue until it's gone. Otherwise, things can get pretty ugly. But it's certainly possible for meme stocks to step it up.
morning: When a guy with a headband says this on Reddit, it seems like: I'm buying more game stopsuddenly everything changes, but only for 24 hours. The same thing happens with Trump media, when Trump does good things, stock prices go up, right?
DC: It's the nature of the beast. I hate to use the word gambling, but that's basically what they're doing. And certainly, there are also cases where fundamental development helps bring it about. And some of them may actually be sustainable. And I'm not saying across the board that all of these stocks will ultimately be bad investments. Overall, they are speculative and therefore risky. And investors looking to participate should be careful. It should be a part of your overall portfolio, perhaps a clearly small part. If it works, great, but if it doesn't, you'll certainly want a cushion.
morning: How can young or novice investors tell the difference between speculative and not-so-speculative investments?
DC: So sometimes it's the old Potter Stewart quote, right? “Sometimes you know it when you see it,” but I think there are some meme stocks that are clearly driven by posts on message boards and the like. If you're actually investing money in those stocks, I want you to know that's what's driving those stocks. It's the long-term fundamentals, such as a company's competitiveness, management strength, and balance sheet strength, that aren't all that should be considered in a prudent stock selection. What I say is, knowing that some of these meme stocks are likely to double by the time this conversation is over, and some people are going to make a lot of money with it, that's not investing. It's a gamble.
morning: That sounds boring and unsexy, but it's not just a secret on message boards, it's a real economic mess.
DC: It's difficult to make comprehensive statements. While some of these companies may have continued success, many probably will not. We've seen this many times before, going back to the Internet bubble, when there were so many companies, so much hype, so many dramatic profits. but they all collapsed. I'm not saying it will happen across the board, but again, as we saw in 2021 and 2022, all it takes is a shift in risk tolerance across the market for many stocks to fall. It was. 70, 80, 90%. Unless you're a short person, that's obviously not what everyone wants.
