Video game retailer GameStop is recognized as the first meme stock. 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 1.12%), and all the right ingredients came together to create a viral meme stock movement. Alternative Assets.Brokerage services for alternative assets available on Public are offered by Dalmore Group, LLC (“Dalmore”), member of FINRA & SIPC. “Alternative assets,” as the term is used at Public, are equity securities that have been issued pursuant to Regulation A of the Securities Act of 1933 (as amended) (“Regulation A”). These investments are speculative, involve substantial risks (including illiquidity and loss of principal), and are not FDIC or SIPC insured. Alternative Assets purchased on the Public platform are not held in a Public Investing brokerage account and are self-custodied by the purchaser.
The name is lent to this particular kind of stock as the shares earning the title have been chosen and widely discussed in online communities. The first meme stock is largely considered to be struggling gaming company GameStop, which in early 2021 rose sharply in price as members of the sub-thread “r/wallstreetbets” on Reddit orchestrated a massive “short-squeeze.” The investing information provided on this page is for educational purposes only.
This social sentiment is usually due to activity online, particularly on social media platforms. These online communities can dedicate heavy research and resources toward a particular stock. Meme stocks often have heavier discourse and analysis in discussion threads on websites like Reddit and posts to followers on platforms like X (formerly Twitter) and Facebook. In January 2021, retail investors organized on Reddit and other platforms to buy and hold shares of the video game retailer. This move went directly against traditional investors who were short-selling the stock in hopes of buying back their shares at a cheaper price. To thwart those ambitions, Redditors gleefully managed to raise the price of GameStop shares to an all time high of $483.
Phases of a Meme Stock
The Morningstar Medalist Ratings are not statements of fact, nor are they credit or risk ratings. A change in the fundamental factors underlying the Morningstar Medalist Rating can mean that the rating is subsequently no longer accurate. Put another way, he says, these situations are not quite Ponzi schemes, but share some similarities. “The difference between the two is a Ponzi scheme is specifically created as a nefarious act to defraud investors. Meme stocks don’t start out with criminal intent but lure in unsophisticated investors who may not fully understand market dynamics and valuation.
- Plus, they offer IRAs (traditional, Roth and rollover) so users can manage their retirement funds along with their stocks all in one place.
- Because meme stocks depend on social popularity rather than company performance, they have their own set of risks and rewards.
- Market and economic views are subject to change without notice and may be untimely when presented here.
- The traders gained a lot of attention because they caused Wall Street institutional investors, many short-selling hedge funds, to lose millions of dollars.
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. In 2020, partially due to the COVID-19 pandemic, home furnishings retailer Bed Bath & Beyond was forced to close over 20% of its stores across the U.S. This attracted short interest, but once retail investors jumped in during January 2021, its stock rose by around 60% by June 2021. Bearish investors may have been right all along about the company’s poor prospects, but that didn’t stop Meme investors from driving many investment losses for Shorts Sellers.
What Are Meme Stocks and Are They Worth the Investment?
Investors should consider their investment objectives and risks carefully before investing in options. Refer to the Characteristics and Risks of Standardized Options before considering any options transaction. Supporting documentation for any claims, if applicable, will be furnished upon request. Tax considerations with options transactions are unique and investors considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy. 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.
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 (GME) became a heavily shorted stock due to a decline in foot traffic at malls and dwindling revenues. The short interest, therefore, had grown to over 100% of the shares outstanding. The case that a short squeeze could be precipitated was then developed and touted on Reddit and other investment forums. In addition, big investors, such as Scion Asset Management’s Michael Burry and Chewy co-founder Ryan Cohen, also took long positions.
What are meme stocks and why are they back?
Because of this cycle, it’s the early adopters who really profit from these trending stocks. Once the meme stock cycle enters into the FOMO phase, it’s most likely too late to make a profit. With the internet, chat rooms and discussion boards forex broker listing devoted to investing and promoting stocks also arose. In the late 1990s and early 2000s, these sites helped promote and drive up the prices of so-called dotcom stocks—a bubble that famously burst with far-reaching economic consequences.
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What exactly are meme stocks?
“Stonk” is a deliberate misspelling of the word “stock” that first appeared in 2017 and is often used to imply that someone has only a vague understanding of financial transactions or makes poor financial decisions. Prior to January 2021, the term “stonk” had mostly appeared on Twitter, Reddit, and other social media platforms but the GameStop short squeeze brought it into wider usage, and it started appearing in the financial press. When an investor takes a long position by buying shares of a stock, their loss is limited to the total cost of the shares. By contrast, when an investor takes a short position, there is no inherent limit as to how high that stock’s price can rise, making the investor’s potential loss theoretically unlimited. Short selling does put the investor in a vulnerable situation, at risk of rising stock prices, especially continually rising stock prices or big upside moves. A Short Seller benefits when the shares of the stock they have targeted decreases in value, but alternatively suffers losses if those shares rise in value.
By closing their Short Sell position, Short Sellers add to the buying volume of the stock, causing the stock price to rise further and pressure other Short Sellers to close their Short positions. The cycle (the Short Squeeze) may continue for an extended period of time, or be limited to a few days. The meme stock craze, driven largely by investors lexatrade review on social media platforms and in online forums like Reddit, caused certain stocks to go viral. Perhaps the most famous was the WallStreetBets Reddit thread that encouraged people to buy GameStop and AMC Entertainment stock at the beginning of 2021. Retail investors are also likely to remain keen to pick up on the latest meme stock.
More traditional investors decry the lack of business fundamentals and strong performance to justify sharp surges in stock price. On the other hand, as individual investors point out, given enough support from the masses, a climbing stock price (regardless of current fundamentals) can eventually equate to a stronger business. This comes from renewed consumer interest, along with a rebounding share price or the raising of fresh cash through capital markets when the stock price rises.
There is no guarantee that any of these stocks, or other meme stocks to come, will generate returns. These ETFs hold familiar meme stocks such as Gamestop and AMC, and they also hold a few stocks some wouldn’t think to call meme stocks, such as Tesla and Peloton. Once your account is open and funded, you can also choose from a number of different index funds, like an S&P 500 fund, a fund that tracks government bonds or a fund that tracks international stocks.