The market loves a good story, and when that story shows up as a meme about a meme stock or meme coin on your feed, it feels like you’re being invited to a party that everyone else is already enjoying. The trouble is that the music has been playing for hours, and the pricey tab is heading your way.

So if you’re eyeing meme coins like Dogecoin (DOGE +1.53%) or Shiba Inu or meme stocks like AMC Entertainment (AMC +1.97%) or GameStop (NYSE: GME), this is your nudge to slow down and think clearly. To help with that, let’s discuss three reminders to keep your capital focused on long-term wealth-building rather than dopamine hits.

Image source: Getty Images.

1. The easy upside may already be gone

Memes spread because an asset is already popular and enjoys higher-than-normal sentiment.

Popularity pulls forward future demand for the stock or coin, and when there is no sturdy cash flow or real utility behind the asset, there is less to anchor a higher valuation over time. You tend to hear about these assets precisely when the price is near its apex, as the latter phases of the hype curve ultimately pull in the most people — and the greater fools who’ll be holding the bag when the music stops. This process sets the stage for wild run-ups which soon become sharp crashes followed by endless bleeding of your investment.

Consider the fundamentals behind the most famous meme coin. Dogecoin has no hard cap on its supply and issues roughly 5 billion new coins each year, which means long-run dilution unless demand rises faster than supply; with no actual drivers of its fundamental value, it’s thus a losing proposition to invest.

Dogecoin

Today’s Change

(1.53%) $0.00

Current Price

$0.19

In practice, sustainable compounding of value tends to occur in assets with real earning power. If the only fuel for an asset’s price is more social attention, the crowd eventually wanders off. So, be mindful that you’re more likely to hear about the party right before it ends rather than right when it’s starting.

2. Even a decent company can be a bad investment at the wrong price

Sometimes a solid business becomes a meme. That does not guarantee a good outcome for investors if the price gets detached from business reality, as it tends to with meme stocks.

Look at the case of AMC. Since becoming a massive meme stock in 2021 and issuing a lot of new shares at higher price points to generate fresh capital, management has worked to refinance the company’s debt and stabilize its operations, though shareholder dilution and leverage have been persistent headwinds. The stock is still far below its meme-era peaks — it has lost 81% of its value in the last five years — and even if it now has a new lease on life, it’s hard to see how investors who bought it at the very top will ever see their investment become profitable.

AMC Entertainment

Today’s Change

(1.97%) $0.05

Current Price

$2.59

The same caution applies to other high-profile meme stock names like GameStop, which also still trades well under its mania levels despite occasional bursts of attention since then. Its shares are down by 16% in the last three years, underperforming the market’s gain of 84%.

Turnarounds are possible. But paying a meme premium lowers your future returns and raises the odds of a long, patience-testing round-trip. Be wary of pulling the trigger without considering how an investment arrived at the price sellers are asking for.

GameStop

Today’s Change

(-1.28%) $-0.29

Current Price

$22.29

3. There is a simpler, lower-stress path to compounding your wealth

Bandwagon bets masquerade as low-effort, brainless purchases made by those with poor impulse control.

In reality, such investments demand constant monitoring of social sentiment, and they almost always create anxiety when prices swing, not to mention depression when the prices inevitably fall. Thankfully, there is a calmer way to pursue upside, and it’s actually even easier to implement despite being much smarter overall.

A rules-based plan like dollar-cost averaging into proven assets like Bitcoin or a broad, low-cost index fund such as SPDR S&P 500 ETF Trust lowers the need to try to time your entries and turns volatility into a feature.

If you aren’t familiar, dollar-cost averaging spreads purchases out over time, and mandates investing with the same amount of money at each point, thereby curbing the risk of buying at price peaks and helping investors to stick with the plan when prices are low. You won’t need to rely on hype or market sentiment for these assets to work in your favor, and you won’t need to spend time sweating while checking the price.

Dollar-cost averaging into such assets doesn’t reduce the risk of holding them whatsoever; it only reduces some of the risks associated with your psychology and your investing habits. But a patient, automated plan into assets with durable adoption or broad earnings power has a much higher probability of getting you where you want to go than chasing what is trending this week, so be sure to make use of one of the most powerful investing tools that’s available to you.