The rise of meme stocks in recent years has led to more investing education — and some investors realizing they need to diversify.
What Happened: Benzinga founder and Chairman Jason Raznick shared his take on how meme stocks have changed the markets during an interview on the Schwab Networks' "Market On Close" Tuesday.
The COVID-19 pandemic saw an influx of new retail traders get involved in the markets, which then shifted to the meme stock craze later, Raznick said.
On Benzinga, content would often center on stocks like GameStop Corporation GME, he said, recalling that some readers would get mad when news like downgrades on the stock or caution around investing in meme stocks was shared.
The caution around meme stocks came out of the history of dot-com stocks and investors getting wiped out, Raznick said.
"I didn't want to lose a generation of investors."
Many companies that had IPOs during the dot-com period went bankrupt, the Benzinga founder said. Investors didn't leave the markets after meme stocks, which may have been due to education and diversification efforts, he said.
More investors are looking at index funds and not just individual stocks on Benzinga, Raznick said.
"If this is your life savings, [it] doesn't make sense to be all in one stock."
The Benzinga founder said it's the story that often drives meme stocks like GameStop, AMC Entertainment Holdings AMC and Chewy Inc CHWY.
"There's no technicals to help explain these things,” Raznick said, adding that with some meme stocks, "the story sounds so good.”
Read Also: Innovation, Risk And Growth: Lessons In Entrepreneurship From Benzinga’s Co-Founder Jason Raznick
What's Next: Schwab Network host Oliver Renick asked if the meme stock craze was a net positive: lots of people made money, but investors also lost money.
"I think it's a net positive, but close to being a net negative," Raznick said.
One positive that came out of meme stocks was retail traders learning from social media and other investors to not put all their eggs in one basket, and to diversify.
Raznick spoke of caution and diversification when it comes to the S&P 500, which is tracked by the SPDR S&P 500 ETF Trust SPY.
The Magnificent Seven stocks make up a large portion of the index and tracking ETFs, and Raznick said that if those stocks fall, "the index gets killed."
Raznick said he has been diversifying by buying equal-weighted S&P 500 ETFs. Schwab’s Renick named the Invesco S&P 500 Equal Weight ETF RSP as one option available for investors.
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