Meme stocks: What are They and Why You Should Be Careful Buying Them

Even after the meme stock surge and bust, speculators are always searching for the next meme stock. Top meme stocks have certain requirements to qualify as potential meme stocks. Their fundamentals should be pretty negative, which draws in bears and short sellers who expect the stock price to fall lower.

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Years after hitting this high price, GameStop’s stock now costs a fraction of what it once did. As of March 2024, GameStop’s stock had otherwise traded for more than $20 regularly throughout 2023. Buying or selling a stock based on what you read on social media is risky. If your goal is to buy a house, save for retirement, or otherwise increase your financial security, you might consider a fundamentals-based investing strategy that isn’t guided by Reddit, TikTok, or any other media platform. By driving up the price and “squeezing” these short sellers, Gill and his cohort created massive losses for the skeptics, which included large hedge funds and institutional traders. Conventional wisdom says a stock should eventually settle at a price that reflects how much cash the company is generating, where interest rates are heading and other factors.

But in the short term, what sets a stock’s price is how much investors are willing to pay for it. And, on Monday at least, people are willing to pay much higher prices for shares of GameStop. Single stock ETFs have also recently been introduced, which provide leveraged long or short positions on a single stock. Only a small number of these have been approved for trading so far, but do include some meme stocks like Tesla and NVIDIA. The main victims of the squeeze ended up being a handful of hedge funds, some of which were forced to shut down due to heavy losses. 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.

Where the ‘meme stock’ phenomenon stands, 2 and a half years after the GameStop craze

For an option with no expense ratio whatsoever, consider what Fidelity offers. The brokerage has funds that track large-cap stocks, which the website says, “are considered to be stocks of the largest 500 U.S. companies.” © 2024 Market data provided is python math libraries at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided ‘as-is’ and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see Barchart’s disclaimer. Meme stocks rely on the fear of missing out (FOMO) and short-squeezes to accelerate and maintain their altitude.

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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). While GameStop was the first successful meme stock, it was not the only one. WallStreetBets users quickly identified other downtrodden stocks with heavy short interest to boost. These included AMC Entertainment Holdings Inc. (AMC), the movie theater chain that saw flagging profits amid the COVID-19 pandemic, and Blackberry Limited (BB), the outmoded smartphone maker.

However, in mid-May of that year, the stock experienced a sudden resurgence, fueled by the return of Keith Gill, aka “Roaring Kitty,” to social media. When online investors understood the short positions against GameStop, people took it on as a Robin Hood-like adventure (often using the trading app Robinhood to do so). As a result, hordes of investors started buying GameStop stock, making it very expensive for the hedge funds to buy back from their short positions. The new movie “Dumb Money” is about the GameStop craze in 2021 when amateur traders banded together on the social media site Reddit to give professional investors a run for their money.

With the companies’ profits declining, a number of large hedge funds had taken up short positions on these companies, essentially betting that their business models would eventually fail. One key motivation for the online support behind meme stocks such as GameStop (GME), comes from hedge funds shorting specific stocks. Hedge funds borrow shares at a set price, hoping the price will fall so they can buy them back cheaper and keep the profits in the process, also known as shorting a stock. However, if the stock price rises instead, the losses can be significant, and in rare cases, cause a limitless loss.

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“I support these retail investors, their ability to make a statement,” Gill told The Wall Street Journal in a 2021 interview. GameStop became the chief beneficiary of the first round of meme stock mania in late 2020 when Ryan Cohen, the co-founder of pet supplies group Chewy, announced he had a plan to revive the fortunes of the flagging company. Leading the way is video game retailer GameStop, whose shares have soared approximately 180% to $48.75 after closing at $17.39 Friday. Meme stocks, however, didn’t truly emerge until the year 2020 via the Reddit forum r/wallstreetbets. 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.

• 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).
• Despite its steady decline, BlackBerry is another popular stock pick for Reddit’s investing community.
• It’s my goal to ensure that as many people as possible can make informed decisions about their money, and get the most out of their finances with the least amount of stress.
• However, the stock fell steeply following the company’s announcement of the plan.

GameStop is certainly the most prime example of how meme stocks can provide strong financial returns. Ultimately, the stock price surge had no value-driven characteristics, instead, it was because the communities of retail investors who began buying the stock gave the stock value, making the stock’s price increase dramatically. Due to hedge fund managers shorting the GameStop stock so aggressively, retail investors began buying the stock, incidentally increasing the value of the stock and inflating the price.

Look at stats like volume, short interest and short-term moving averages to locate good meme stock candidates. The “best” meme stock may often have climbed the most but also has the highest probability of falling back down. The best meme stock to buy andrey malahov – forexarticles meets the criteria of poor fundamentals, high short interest, a small float with social media buzz and rising volume.

In recent years DOGE coin has become synonymous with Elon’s personal brand, inciting a craze in crypto investors to inflate the price continually. The semiconductor manufacturer has seen significant Forex trader best volatility in its share price over the past few months. Its stocks made history by having the largest single-day market cap increase in history – adding a whopping $330 billion to its market capitalisation. However, the very next day, its market cap plunged by around $270 billion.5 With volatility like this, it’s worth keeping an eye on. The analysis conducted on these social platforms is frequently from the point of view of inexperienced retail traders, and so is often misguided or flawed.

Because many meme stocks are based in the USA, you may be charged a foreign exchange fee. At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every retirement article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of investing products.