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Here’s why I’m never buying AMC Entertainment stock or GameStop

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The frenzy over AMC Entertainment (NYSE: AMC) stock is back with a vengeance. The US cinema operator started the year trading at $2.20. On Wednesday, its share price topped $62. That’s a rise of more than 2,700% in six months. If I had invested £1,000 on 4 January, I’d have an incredible £28,000 today.

Yet I won’t invest a penny of my money in AMC stock, and never will. Just as I won’t invest in US bricks and mortar video games retailer GameStop. Both companies have been going gangbusters lately, but for all the wrong reasons.

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I know from past experience I’ll never make a profit from ultra-volatile stocks such as these. What I will get is a lot of stress and worry, as I stare at my screen, fretting over every movement. That’s why I’m shutting them out all together.

I’m shunning AMC stock

Clearly, some people have made big money from the AMC Entertainment frenzy. Yesterday, latecomers got a taste of the risks involved. AMC stock fell a thumping 17.92% in one day. Early-stage investors will still be ahead, given it trades at $52 right now. Recent buyers will be feeling edgy. The AMC price chart is at the top of a vertiginous spike.

The fast money has now been made. If I bought AMC stock today, my previous experience of trading hot trends suggests I’d soon be sitting on a heavy loss. Especially if I did something really daft, and used leverage.

Get-rich-quick stocks like AMC and GameStop are dangerous because they play on the emotions. The first is greed, obviously. Then fear, as the losses multiply. Worse, they fire up the herd instinct.

Day traders on Reddit and other websites are forever revving each other up, to buy and hold to the moon, in the jargon. That’s not how I like to invest. Especially in these two stocks, where there’s no justification for today’s heady valuations.

All the usual company measures I examine, such as profits, revenues and balance sheet strength, tell me they have serious problems. That’s why some are buying AMC stock. To destroy the short sellers looking to profit from its troubles (and coincidentally, make quick money themselves). They don’t give a hoot for the underlying businesses, although some claim they do.

I feel sorry for AMC and GameStop. Neither business asked to be at the centre of this storm. Maybe when the frenzy has finally subsided there will be good businesses to invest in, but I’m still sticking to UK shares.

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My strategy is to build a balanced portfolio of FTSE 100 and FTSE 250 companies, which I aim to hold for a minimum 10 years, and ideally longer. I look for companies that can deliver steady, growing different revenues, for year after year. That have minimal debt, and can afford to pay healthy dividends. I don’t expect them to fly to the moon, like AMC stock. Ever.

My aim is to get rich slowly. I believe my chances of success are far higher as a result. My strategy doesn’t offer the same thrill as gambling over the latest AMC stock or GameStop movement, but it’s worked for me so far.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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