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Stop Calling the Small Traders Meme Names

Real Money's Timothy Collins say meme-trading shouldn't turn you off to the real value that you can find in small-cap stocks.

There are meme trades, and there are small-cap trades. Both types of investors specialize in elevating lesser-known assets. That, writes Timothy Collins in his Real Money column, is where their similarity ends.

Collins says: "The term 'meme stocks' is grossly overused at this point. It's momentum plain and simple. GameStop  (GME) - Get Report, AMC Entertainment  (AMC) - Get Report, and a few others could be called meme stocks, like maybe Sundial Growers  (SNDL) - Get Report, but we're limit up on the use of the phrase."

Collins says he doesn't mind when large caps and small caps move together, "but to have a market led by a narrow group of large-cap names like we've seen as of late is not only dull, it's misleading."

Don't get your stock tips from social media. Check out Collins' trading strategies and smart stock ideas over on Real Money.

It's easy to get trapped in smaller names believing the market is strong, he says. When we have narrow leadership, mistakes aren't easily forgiven like they were last year.

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For many traders, recent months have solidified the idea that meme trading and small cap trading are the same thing. That’s simply not so, Collins says. Small-cap traders chase legitimate value in the lesser-known assets. Buying these stocks can help your portfolio outperform the market in very large part because the big names have already been priced in. Your large caps, your FAANGs, will often perform exactly as expected.

What’s the takeaway? Don’t let meme-trading turn you off to the real value that you can find in small-cap stocks and the Russell 2000. Just because some investors are out there chasing cryptocurrency and the tips they got off Reddit, it doesn’t mean that all obscure assets are based on speculation. Many are simply lesser-known stocks with solid fundamentals behind them.

Trade smart, trade sober, don’t get your stock tips from social media. Read more of Collins' column on Real Money.