What is a meme stock? Name, popularity, investment safety unpacked

Looking at many of the other such altcoins, we think it would be fair to say that most of them are looking to become meme coins as their only chance for prominence. Indeed, this possibility is their best bet as there are over 4,000 cryptocurrencies on the market at the time of writing. best australian stocks to watch A fact perhaps pointing to the latter is how coy they got about what they said in the tweet claiming they understood the short interest better than the general investing public. During the summer of 2020, activist-investor Ryan Cohen argued that GameStop could be a great investment.

  • Risking money in speculative investments can be exhilarating, but it is rarely the path to long-term wealth.
  • Generally speaking, Redditers love to choose underdog companies that are losing out on the modern world.
  • All investments carry a certain level of risk, some more than others.
  • Online investing communities, such as those found on Stocktwits and Reddit, grew as the COVID-19 pandemic forced people to stay at home.

This was picked up by The Roaring Kitty of r/wallstreet bets who convincingly argued for a short-squeeze in video format. You think that the ruling in the Nestle child slavery case is outrageous and that the chocolate giant should suffer? You found a really good startup still struggling to escape the penny stock phase? If you choose to agree with us and see the meme-stocks as an old phenomenon that simply got formalized recently, you might also agree that what happened in late 2020 is more of democratization, than inception.

Create a free account to unlock this Template

As a result of sky-high prices and persistent demand for shares among individual investors, AMC Theaters CEO Adam Aron took advantage of the elevated valuation and engaged in a series of secondary (follow-on) offerings in 2021. This raised more than $1.5 billion in the first quarter (Q1) from voracious meme stock buyers. In fact, this is a question that has led to various debates by investors of all experience levels. Others believe it’s reckless investing that will lead to larger problems in the future. Let’s take a deeper look at this investment trend that has taken the American markets by storm. Towards the end of January, WallStreetBets users criticised large financial organisations and hedge funds for continually shorting struggling stocks such as GameStop and AMC Entertainment.

  • The GameStop episode in January was defined by the so-called short-squeeze.
  • Part of the motivation behind the online support for certain meme stocks comes from hedge funds’ short positions in those companies.
  • Because of the investor losses incurred (and the education gained), expect a more traditional stock market rise.

For example, while Apple’s success has often been attributed to its innovations, its commercials have always focused on selling ideas and feelings, not products. This has been a recurring theme from as early as the eerie 1984 ad how to buy aioz for the first Macintosh, to the “happy dancing people” ad for the new AirPods in late 2021. Memes can be defined as short, self-replicating pieces of cultural information, and they have gotten supercharged by going digital.


Meme stocks have been known to drop down by 30% or more in a single trading session, and these swings can wipe out an entire account in a matter of days. The third criteria to find the next meme stock is the management, possibly the CEO must be pro retail traders. So it’s very important that we find a stock with high short interest, otherwise, you’ll never get that squeeze that helps a price run-up so high, so fast. Companies that are on the brink of bankruptcy make perfect candidates for meme stocks. This is why many on Wall Street and the mainstream media, have compared meme stock trading to gambling rather than investing. If you look at some of them, for example, Bed, Bath and Beyond together with AMC was one of the meme stocks.

Where does meme stock come from?

Funds that track the S&P 500 are generally an effective way to earn a good return on your money over time. Historically, the average annual return for the S&P 500 hovers around 10%. Though the idea of amassing crazy wealth overnight is obviously appealing, the reality is that the odds are heavily stacked against anyone trying to outsmart the market. The meme investors who walked away with a lot of money were arguably just very lucky.

The GameStop episode in January was defined by the so-called short-squeeze. Both GameStop and AMC were heavily shorted stocks, and high short interest became an early defining feature of meme-stocks. If you’re excited about investing in meme stocks, but don’t love the risk of holding a singular stock, the Roundhill exchange-traded fund MEME offers investors exposure to 25 meme stocks in one ETF.

GameStop stands alone

Meme stocks are crazy, one day they’re loved by Redditors, and the next day they might focus on something else. Another example is GameStop’s new chairman of the board, Ryan Cohen, the former CEO of Chewy. He’s seen by many Redditors as the savior for GameStop, and he even often posts memes on his Twitter account. There’s a lot of these meme investors who are looking to stand up to Wall Street institutions and actually stick it to the man. If you go back and take a look at the current prices, at the time of this writing, which was around $200, this position was worth nearly 44 million dollars. Gill also famously held 500 call options for GameStop, which he actually exercised in April of 2021 with a strike price of $12 per share.

Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Historical or hypothetical performance results are presented for illustrative purposes only.

And 22% are more careful about the sources they use for their investment research; additionally, 15% are more careful about diversifying their portfolios. In addition to GameStop, examples of meme stocks include AMC, and BlackBerry. While the companies themselves have not performed well in recent years, all three stocks went viral on a popular Reddit forum, and saw massive price hikes in early 2021, specifically on January 27.

Meme stocks are so-named because ideas about them spread rapidly on social media and web forums. Meme stocks also see communities built around them that promote the hype and elaborate on the original meme, inventing specific terms and symbols to accompany the stock. GameStop, among the first meme stocks, is a prime example of how the retail investor community identified a highly shorted stock and used a short squeeze to work in their favor.

Meme Stocks: What They Are and 5 Top Stocks for October 2023

The meme stock movement unofficially started in the summer of 2020, when most people were stuck at home during the first few months of the pandemic. Looking to turn some of that extra free time into money, many people turned to the stock market and social media for ideas. Some of the more popular meme stocks, such as AMC and particularly GameStop, continue to have higher stock prices what is trade size than before the short squeezes in 2021. Hedge funds are types of investments that pool money together from wealthy investors, and short selling is when you borrow shares from a broker and immediately sell them with the hope that the stock price will fall. If it does, you can repurchase the shares at the lower price, return them to the brokerage and keep the difference as profit.

Meme stocks are popular in part because they can result in a big win over a short period of time. Buying up cheap shares to have them skyrocket in price results in a large payout. Another similar short squeeze occurred during the summer of 2022 when meme stock communities drove up the price of the Bed, Bath, & Beyond (BBY) shares by 314%. A shorted stock is a stock which is borrowed from a broker and then sold, with the seller banking on buying it back later for a lower price. However, a short squeeze can occur when those borrowed stocks rise in price rather than fall. Even with meme stocks, the old adage, “Don’t put all your eggs in one basket,” still rings true.

The origins of the official meme stocks can be traced down to the summer of 2020 when people were becoming increasingly bored by the restrictions imposed due to the COVID-19 pandemic. Finally, though, the meme stocks have washed out (that is, returned to their pre-runup prices – or lower). Their fate was foreseeable because, like all stock market fads, the weak fundamentals “win” in the end. The term “meme stocks” has become the center of attention for investors throughout the end of 2021 and much of 2022. Along with cryptocurrencies, it’s the most controversial topic within the financial industry at the moment. Another struggling company that has seen its share price soar is US-based movie theatre chain AMC Entertainment.

Leave a comment

Your email address will not be published. Required fields are marked *