What Investors Need to Know About Meme Stocks

what is meme stock mean

Some meme stocks did not fare as well as others, even with the occasional short squeeze. Other meme names have included, among others, Bed Bath & Beyond Inc. (BBBY), Koss Corp. (KOSS), Vinco Ventures (BBIG), Support.com, and even the meme stock enabler Robinhood Markets Inc. (HOOD). It might be appropriate to devote a small (1%) portion of your well-diversified portfolio to investing in high-quality meme coin plays, especially https://broker-review.org/ if you can tolerate significant risks in exchange for the possibility of large returns. When paired with the excitement of seeing the coin price rise, and the often-euphoric discourse shared with other community members, it’s no surprise that meme coins have staying power as a type of cryptocurrency investment. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns).

Big moments in meme stocks this year

Unlike its predecessors and other investing message boards, WallStreetBets became known for its unconventional and often irreverent tone. In this and other forums that have popped up since, users work together to identify target stocks and then promote them, while also putting their own money to work. But it does mean that there’s a group of people working, often around the clock, to advance a project — and when you buy the coin, you’re banking on their success, which is something that most investors tend to miss. And while such coins might not ever have an end use, it’s undeniable that their communities believe that the tokens have value.

what is meme stock mean

Meme stocks may make you rich, but here’s why your money is better off invested elsewhere.

Other companies that have become meme stocks to varying degrees include Plug Power (PLUG), Virgin Galactic (SPCE), Palantir (PLTR), and BlackBerry (BB). Then, in January 2021, the short squeeze that The Roaring Kitty had suggested took place in earnest, with the price of GME shares exploding to nearly $500 amid a frenzy of short-covering and panic buying. A few days later, the former CEO of Chewy.com and investor Ryan Cohen purchased an unknown amount of GME stock, which Gill acknowledged on Twitter (now X). In November 2020, it became public knowledge Cohen owned a 10% share in the company.

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A member of the hot 2020 IPO stock class, Palantir quickly gained a large investor following after making its public debut. The company builds enterprise big data and AI software that helps organizations update their operations for a digital era. Palantir has concentrated exposure working for government entities, but it’s quickly working to expand further into the private sector. SoFi’s financial services — all unified together via a singular app — got its start in the student loan niche of the industry.

As the price of the shorted stock rises, the short seller will begin to experience losses. These losses must be covered in a timely fashion, often prompted via margin calls, whereby the broker demands funds to make up for those paper losses. Indeed, as these became recognized meme stocks, members of r/wallstreetbets and similar outlets began to acknowledge the humor (for the “lulz”) of seeing powertrend such legacy companies emerge from the ashes in the stock market. There’s a case to be made for investing in meme stock, though there are some risks involved. On the other hand, those investors who held on to their GameStop shares after this peak would have seen their value drop back to just over $40 by mid-February. They’d still have been ahead at this point but by a much narrower margin.

  1. This effort was led by a community of amateur stock traders on the social media site Reddit, specifically the subreddit (forum) /r/WallStreetBets.
  2. In 2020, some stock trading enthusiasts became aware of some hedge funds’ short selling of GameStop and other stocks and decided to take the risky move of trying to exploit those positions.
  3. The short interest, therefore, had grown to over 100% of the shares outstanding.

The traders gained a lot of attention because they caused Wall Street institutional investors, many short-selling hedge funds, to lose millions of dollars. Add in a pandemic, a surge in new investors who grew up online, and the ease of stock trading on new apps such as Robinhood Markets (HOOD 4.44%), and all the right ingredients came together to create a viral meme stock movement. Meme stocks have been a boon to investors, day traders, and brokerage platforms but companies have also capitalized on the meme stock phenomenon. 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.

As a result, the meme stock concept adopted a David vs. Goliath or Robin Hood connotation of taking from the rich Wall Street elite and rewarding the small retail investor. The term meme stock is informal, but it is now used even among professional traders and analysts to refer to stocks whose popularity is largely based on internet trends. If you’re interested in meme stocks, it can be helpful to check under the hood before venturing in. This means taking a closer look at a company’s fundamentals, which are a way to measure its overall financial health. You can do that by comparing things like the price-to-earnings (P/E) ratio and earnings per share. You can also look at how much debt the company is carrying relative to its assets and cash flow.

Meme stocks originated in 2020 and were primarily fueled by commission-free trading by companies such as Robinhood and the significant growth of online investing communities. This week alone retail traders added a bevy of new names to the list. The term, which once described a handful of companies including GameStop, AMC Entertainment, BlackBerry, and Bed Bath & Beyond, has ballooned in recent weeks to new names.

Most of all, don’t turn off your skepticism of projects in this market. Established communities can decline and their members are often fickle. The existence of an active meme community does not abrogate a coin’s volatility, nor does it fully mitigate the risk of a permanent collapse https://broker-review.org/liteforex/ in a coin’s price. Now that you’re up to speed on the community perspective of meme coin investments, let’s use this framework to compare them to a traditional investment, like a stock. Use of the term meme stock was popularized by users of the subreddit /r/WallStreetBets.

The term — used as a catch-all to talk about a group of companies that have seen their stock surge since the GameStop craze — has left some scratching their heads as to how, or if, they can be defined. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.