What does a meme stock entail?
In a world of mass internet consumption and fast fads, memes have fallen into the center of all things amongst millennials and the new generation. This is no different in the world of finance as we have seen cult-like followings for certain currencies or stocks. In short, meme stocks are stocks that have gained rapid popularity by way of community discussion on platforms like Reddit and on social media sites like Twitter.
Through the coordinated efforts of this community, these meme stocks can actually greatly impact the market. The rapid influx of support for these stocks have actually impacted major hedge funds and other financial institutions but we’ll touch on a significant example of this shortly. A meme stock’s value will generally be greatly outperforming the quality of its actual fundamentals due to its following of dedicated members.
Meme Stocks and how they work
A meme stock will start as a small point of discussion amongst online community members. This stock will contain some point of popular culture within it which is ultimately the spark that starts the wildfire. The meme stock may be relatable due to its inherent humor or even nostalgia (as seen in the case of GameStop). The idea to buy into a stock is then carried through internet platforms like Reddit and Twitter at a rapid rate.
While internet forums have been around since the 90’s, we can say for sure that the rise of meme stocks came about in 2020 after the r/wallstreetbets forum on Reddit provided insight into companies that were shorting stocks. More informative forums would follow, leading to members buying and holding onto these meme stocks in a very “stick it to the man” fashion. The forums promoted solidarity as opposed to the usual pump-and-dump strategies that we have seen in the past.
The GameStop frontier
There really is no better example of the rise in meme stocks than the story of the GameStop squeeze. In an age where consumers can buy everything they need online. Foot traffic around malls has dwindled. This has left companies like GameStop in a steady decline for the past few years. The short interest on GameStop stock had grown to 100% so naturally, the hedge funds sharks were circling.
Community forums detected that major short positions were being taken up on the GameStop stock. As such, the community, both for the impunity and for the nostalgia of a beloved games company, decided to drive the price of the stock up by uniformly purchasing GameStop stock. This massive community effort drove out the short sellers in the early stages and even attracted massive investors like Elon Musk. In less than 6 months, the GameStop share price had risen from $5 to $325, forcing massive hedge funds to sell their short positions at major losses. (1)Roaring Kitty. "The Big Short SQUEEZE From $5 to $50? Could GameStop Stock (GME) Explode Higher?? Value investing!,"
Where does the name “meme stock” come from?
A meme is simply an idea that has grown at a rapid pace on the internet. It can be a humorous anecdote, a past time, a cut frame from a movie or anything that elicits mass community reaction. As such, we call them meme stocks because of how quickly they garner attention and how quickly they spread across the web.
Notable meme stocks
GameStop may have been the first real meme stock to take off but it certainly wasn’t the last. The community now had a taste for taking on hedge funds who were shorting stocks that were on a downslope. It didn’t take WallStreetBets long to find the next targets, which were AMC Entertainment Holding Inc and Blackberry Limited. It was now becoming a humorous thing to do to aid the stock prices of these very clearly failing and outdated companies. The share price of both these companies rapidly rose, leaving the hedge funds who were shorting them in tight spots yet again.
While there were many successful community movements for meme stocks, some of these stocks were not quite as successful with the share price boost. For example, stocks like Bed, Bath and Beyond, Koss Corp and Vinco Ventures did not enjoy the same spike that its previous meme stock predecessors did. (2)MarketWatch.“The Meme-Stock Moment Turns 1 — Unofficially — and Welcomes a Sophomore Class of Tickers.”
Are there any current meme stocks today?
2021 so a massive elevation in the share prices of meme stocks. Since then, there has been a steady decline in many of these stocks. With that being said, there are still some meme stocks that maintain a much higher value than they did when they were essentially going under, such as GameStop.
An initially fair assumption that was made was that the meme stock fad would quickly dissipate. However, this has not been the case as there is still a strong showing for meme stocks today. 2022 still saw a massive boost to the Bed, Bath and Beyond stock price, that rose as high as a 314% increase before it suddenly came tumbling back down to earth.
We are in a period of time where the youth are finding it difficult to cement real world jobs and earn steady income. As such, the rise in meme stocks is not likely going to end any time soon as young investors remain keen on making over sized gains in a short period of time with relatively minimal effort being put in.
Is it worth investing in meme stocks?
There is nothing unethical or illegal about meme stocks. They are legitimate stocks that are listed on stock exchanges that investors can buy and sell at any time. Industry experts remain resolute in their assessment that these stocks are outperforming their fundamentals considerably. They maintain that these stocks are more for entertainment value than anything else.
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