Investing in ‘trendy’ stocks can feel like a thrilling rollercoaster ride. You’re on a high when things are going well, but what happens when that ride takes a sudden plunge? As the world moves into the next stage of the pandemic in 2024, several once-popular stocks have experienced dramatic nosedives. Now, some investors are asking: could I have a case for a securities lawyer? If brokers and financial advisors didn’t adequately explain the risks, the answer could be yes.
Dazzling Peaks and Dismal Valleys: The Rollercoaster of Trendy Stocks
As research suggests, index funds that track a mix of stocks usually outperform individual stock picking over time, with the S&P 500 providing a healthy 12% return over the decade ending in 2023. Staking everything on a single stock can be a high-risk strategy.
Nevertheless, in 2020, a number of stocks experienced sudden and significant growth, firing up both directors and their clients to hop on board. Investors bank on the expertise of financial advisors to steer clear of common investment pitfalls, but in the mesmerizing glare of skyrocketing share prices, could those professionals have overseen the risks?
The Flash and Fizzle of 2020’s Popular Stocks
To top the list of stocks which saw meteoric rises only to then experience staggering drops are Peloton, Roku, Shopify, Netflix, and Zoom.
With its stock prices falling 97% in 2023 from a peak in 2021, Peloton led this list. As life resumed some normality, customers swapped at-home workouts for gym visits, crippling Peloton’s share prices.
Similarly, Roku, despite being popular as a TV Operation System, suffered a blow as its share price dropped by 82% between 2021 to 2024. The company’s gamble on achieving profitability through advertising did not pay off.
Shopify saw drastic fluctuations, as its share prices increased more than 380% between March 2020 and November 2021, only to fall 75% the following year. Then, to add to the confusion, it shot up by 97% in 2023.
As for Netflix, amid slow subscriber growth in 2022, it saw its share prices fall by 22%, impacting negatively on funds like Pershing Square.
Zoom completes this roster, with its share prices dropping an astonishing 87% from a high of $559 per share in 2020 to about $72 by the end of 2023.
Broker Misconduct: Overconcentration and Margin Abuse
Should the investors who were lured into these poorly performing stocks have been better advised? Missteps such as recommending unsuitable investments or overemphasizing a single stock (overconcentration) can lead to unnecessary risk, potentially breaching financial regulations. FINRA Rule 2111 and Regulation Best Interest, for example, prohibit brokers from recommending overly risky investments unsuitable for an investor’s needs.
Furthermore, urging investors to bankroll investments using borrowed money via margin accounts, without fully illustrating the complexities of this investment strategy, can also lead to financial harm.
If you’ve been bitten by a risky pandemic stock and feel you were steered wrong, it might be time to explore your options. There are securities attorneys out there who specialize in this area of concern. If your losses were due to inappropriate advice or neglect, they can help you navigate the legal intricacies to seek compensation.