Some investors in meme stocks and crypto are taking 'YOLO' to heart, but as Spencerjakab explains, you are more likely to reap better results if you don’t. WSJWhatsNow
—indicating their belief that the movie chain’s shares will hit $500,000 in the “mother of all short squeezes.”Leaving aside the obvious problem that these aspirational values for bitcoin and AMC are 15 and 12 times the size of the entire U.S. economy, respectively, even those with more modest targets and big personal bets are ignoring a classic wealth-building formula used by investing legends like Warren Buffett and Bill Gross.
They start out with a person who is faced with a 50/50 coin flip. Heads would mean losing everything and tails would mean some level of return. As the payoff rises, the percentage of wealth optimally wagered would too, but only at first. The expected outcome is the average of 50% of zero and 50% of their target.
AMC investors might not put the odds of bankruptcy at half, but it also isn’t zero. If some truly believe that AMC stock will be worth half a million dollars then 20 shares costing around $500 at today’s price will be worth a fortune of $10 million. Yet social media is full of people using the hashtag who say they have wagered tens of thousands—much of their wealth—on the stock, and that they won’t sell.
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