Kristen Lunman, chief executive of Hatch. Photo / supplied
Some investors will have had a big reality check from the plunge in meme stocks, cryptocurrencies and NFTs in recent months.
More than 10,000 Kiwis poured their money into the likes of GameStop and AMC Entertainment in 2021 as their share prices soared to new highs.
But the shares have fallen a long way in recent months and markets around the world have plunged with cryptocurrencies and NFTs falling even further than mainstream sharemarkets.
Kristen Lunman, chief executive of investment platform Hatch, told Continuous Disclosure that many investors jumped on board the meme stocks as a rallying cry emerged via social media in opposition to big hedge funds who were betting on their share prices falling.
"Thanks to social media this movement against Wall Street and piling into these stocks became viral."
GameStop soared as high as US$325 a share but has now fallen rapidly. Earlier this month it hit US$81.33 although the shares have rallied somewhat since then.
Lunman said the share prices had been pumped up artificially and human nature meant those who had made a lot of money would sell out.
"So that share price has fallen because of that. We have also seen the wind come out of the sails of the sharemarkets.
"They don't have strong fundamentals behind the business so really you have got just a moment of reality where the share prices have fallen back down to earth."
At least 10,000 Kiwi investors jumped in and more than 9300 have stuck with it.
Lunman said people had been attracted by the David and Goliath story scenario.
In the US there was also a nostalgia for the businesses themselves and then there were people who really did believe the shares would come back up.
"When you have an environment that is really tough for people to make money or get into property they are looking to make money and still believe the possibly can."
Lunman believes the meme stock phenomenon is here to stay.
"When you have got such connection online and there are certain plays that are evident that hedge funds might make you are still going to see bands of people grouping together to try and take advantage of it."
But the downturn in the markets would also be a great lesson for investors.
"It is going to be a great learning point for many of these people that have come in in the last couple of years."
She said there was a lot of education happening around people recognising a downturn in the market was par for the course and that over the long term, sharemarkets recovered.
But they would still have to deal with the emotions that came with seeing it unfold.
Lunman also said it would test people's risk tolerance, "particularly those that have invested in some of the riskier stocks - no doubt meme stocks or crypto.
"I think this is the time where people actually realise - okay that doesn't quite feel right I'm not quite ready for shares of XYZ be it growth or tech or whatever."
That might mean some people pare back certain investments and start looking for alternatives like dividend-paying stocks.
"I think it is a period of learning."
Continuous Disclosure is available on IHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every second Wednesday.
You can find more New Zealand Herald podcasts at nzherald.co.nz/podcasts or on IHeartRadio.
Meanwhile, the post-election rally cooled in the United States.