The meme stock traders are at it again. Two weeks ago, video game retailer GameStop (NYSE: GME) was trading around $11. In pre-market trading at the start of this week it surged above $68.

I first reported on the meme stock phenomenon in January 2021 (“The Rise of the Reddit Revolution”). That month, GME rose from below $5 to above $120 as a cabal of individual investors started buying it in droves (adjusted for 4:1 stock split in July 2022).

That forced short sellers to buy the stock to limit their losses. A short sale entails selling a stock first and then buying it back later at a (presumably) lower price.

That strategy was working beautifully for the GameStop short sellers for a while. As the company desperately tried to avoid bankruptcy, its share price inched closer to zero.

But then a group of Reddit readers decided to flip the system on its head. By acting in unison, they were able to force a “short squeeze” that made many of them very wealthy in a matter of days.

However, it also caused havoc at some of the online brokers that facilitated those transactions. So much so, that a Congressional hearing was held to get to the bottom of the matter.

In truth, that hearing was primarily an exercise in finger pointing and blame shifting. In the end, nothing really changed much.

That’s Entertainment

Now, it looks like the meme stock traders are at it again. And it’s not just GameStop that is back in play.

Another Reddit reader favorite, theater operator AMC Entertainment (NYSE: AMC), quadrupled in value at the start of this week. Also, software developer BlackBerry Limited (NYSE: BB) jumped 30% in just two days.

Once again, the meme stock traders are trying to induce a short squeeze in all these companies. At end of last week, the short interest in GME, AMC, and BB was 27%, 20%, and 8%, respectively.

That explains why GameStop was the biggest mover. Approximately one-fourth of its float, or shares trading on an exchange, have been borrowed by short sellers.

Sooner, or later, they must close out their positions by buying those shares back. Ideally, they would prefer that the company go bankrupt so that the stock becomes worthless.

That’s a dangerous game that should only be played by professional traders with deep pockets. When a short sale blows up, the losses can be staggering.

The meme stock traders are taking a lot of risk, too. At what point do they book their profits so they aren’t left holding the bag when the share price starts to plummet?

To be sure, this is not investing in the conventional sense. It is pure gambling, with an equal number of winners and losers.

That is why I have never engaged in a short sale during my 40-year investing career. One mistake could wipe out a lot of gains.

Berry Picking

I own BlackBerry in my personal account. Not because of its potential as a short sale candidate. In fact, just the opposite.

I believe BlackBerry could soon become a consistently profitable business. Its autonomous driving software is highly regarded.

BlackBerry is adapting the artificial intelligence (AI) used in that program to enhance its cybersecurity products. So far, the company has had difficulty gaining market share in that sector.

That may soon change. Two weeks ago, BlackBerry introduced its Cylance Assistant service. The company claims that this software package “is not just a generative AI cybersecurity advisor; it’s the ultimate one.”

That remains to be seen. But if its cybersecurity product really is cutting edge, then BlackBerry should see a jump in revenue this year.

Thus far, my confidence in BlackBerry has not been rewarded. Even after jumping rising $3 at the start of this week, BB is far below the $5 level it was trading at a year ago.

Three years ago, BB rose above $13 during the initial meme stock frenzy. I don’t know if that will happen again this time.

If the meme stock traders manage to push BB above $10, then I’ll sell my shares and wait for it to pull back. If it drifts back under $5 after that, I’ll buy it again.

I want to own it for the long haul. If what BlackBerry says about its AI capabilities is true, then the company isn’t going out of business. Eventually, investors will be buying the stock for the right reasons.

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