A chief investment strategist breaks down how the GameStop saga could upend decades-long practices on Wall Street — and shares her 4-part advice for navigating the frenzied trading environment

  • Ally Chief Investment Strategist Lindsey Bell says the meme-stock rally could be a good thing for average investors.
  • Still, she says investors who want to play the newest hot stocks should understand that they are speculating.
  • Bell also advises investors to have a plan and stick to it when things get strange, and to understand how unusual this time is.
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If you've spent the last couple of days watching troubled, positively despised stocks go wild, it might look like the market has turned into something completely new.

Despite some surprising and high-speed twists, it hasn't. But when experts are breaking out once-obscure terms like "gamma squeeze" and fumbling for comparisons to some of the biggest or strangest events in market history — the Great Depression, the Financial Crisis, the tech bubble — it's clear something unusual is happening.

While some people are alarmed by the speed and strangeness of the trading in GameStop and Blockbuster and other "meme stocks," Lindsey Bell, the chief investment strategist at Ally Invest, says the growing influence of social media on the market could be positive and might increase transparency.

Ally is a low-cost broker that offers no-fee stock trading and low-cost options trading. The company says it has more than 2 million deposit customers with $137 billion in total deposits.

Institutional investors "technically have been doing this type of thing behind closed doors for a long time," Bell said in an exclusive interview. "They have different conferences that only people in the hedge fund world or institutional world can attend where they talk about their best ideas … conversations that the retail public aren't privy to."

She says the events of the last few weeks have made it clear that regulators are behind the times when it comes to social media and stocks, and that might mean new rules are needed for individual investors and for big money firms.

If you're not buying stonks and are worried about what it might mean for your portfolio, Bell says there's little cause for concern because the volatility is limited to just a few hyper-shorted stocks. 

And for those who are trying to get their bearings and figure out if they want to get involved right now, Bell offers these pointers.

(1) Understand you're speculating

Maybe you really believe that GameStop has a fantastic turnaround plan or that Blockbuster is going to be the next Netflix. No matter how confident you are in that thesis, Bell says investors should understand that a meme stock is moving for reasons that have little connection to its business.

"You need to be honest with yourself about why the stocks are popping as significantly as they have been," she said. "Make sure that you're making that bet with an amount of money that you feel comfortable with potentially losing."

That means that many of the new investors aren't going to stick around to see the turnaround in these companies play out. They're more likely to leave as suddenly as they came in. 

(2) Don't be shy about taking profits

For that exact reason, no matter how tempting it is to see if your meme stock can go up another 100% tomorrow, don't hesitate to book a profit and walk away. 

"Have the discipline to take the profits at a certain point that you feel comfortable with," Bell said. "Have a game plan going into it, have a game plan, be disciplined, and don't put a lot of money into the speculative trades."

(3) Don't chase soaring stocks

If you've read this far and still want to bet it all on BlackBerry — assuming you can find a platform that will let you buy it — Bell warns that getting into a stock that's rising like a rocket is a great way to lose out.

The GameStop rally has lasted longer than many might have predicted, but for it and for other meme stocks, there's no way to know when the surge will end and how far they're fall when the fun is over.

"If you've missed the pops that have happened in some of these speculative trades, then I would say just avoid it," Bell said. "If you're in it for the long haul, you're in it to prepare for retirement or a longer-term financial goal, the stock market is not a lottery ticket. You shouldn't be investing for the short tops."

(4) This is not normal

Only a few stocks out of thousands are going parabolic, and the conditions that are feeding into it are even more exceptional: a new crop of day traders brought in by no-fee online trading; people stuck at home during a pandemic that's also affected sports and TV; an influx of stimulus checks; and the dominance of mega-cap stocks.

Bell says newer investors should understand that stocks don't usually do this, and if they assume these kinds of fast, giant moves are normal, they're likely to be disappointed. More importantly, they're likely to misunderstand any big moves in their portfolio.

"There's concern for new investors that they think that this is the normal course of business when it isn't," she said. "The market should be kind of more on the boring side."

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