What Is a Meme Stock and How Does a Stock Become One?

What Is a Meme Stock and How Does a Stock Become One?
5 de setembro de 2023
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5 de setembro de 2023

What Is a Meme Stock and How Does a Stock Become One?

T-bills are subject to price change and availability – yield is subject to change. Investments in T-bills involve a variety of risks, including credit risk, interest rate risk, and liquidity risk. As a general rule, the price of a T-bills moves inversely to changes in interest rates. Although T-bills are considered safer than many other financial instruments, you could lose all or a part of your investment. They usually target companies that Wall Street has bet against.

  1. JSI and Jiko Bank are not affiliated with Public Holdings, Inc. (“Public”) or any of its subsidiaries.
  2. This is not an offer, solicitation of an offer, or advice to buy or sell securities or open a brokerage account in any jurisdiction where Public Investing is not registered.
  3. As you might expect, the GameStop saga attracted quite a bit of legal scrutiny.
  4. These situations often start with a short squeeze, and then turn into a self-fulfilling prophecy in the short run on the way up.

The original meme stock, GameStop is still one of the most popular ticker symbols on social media. During the initial meme stock short squeeze frenzy in January of 2021, GameStop’s stock hit an all-time high of over $500 in pre-market trading. While it has lost most of its value since that squeeze, GameStop traders are still patiently awaiting the MOASS or Mother of All Short Squeezes. Given enough support from the online masses on a meme stock and a high short interest, the stock can exhibit extremely high trading volume and bids. As a result, the share price of meme stocks trades significantly above their estimated value implied by fundamental analysis.

Multiple rate cuts would flood the financial system with liquidity, and there is bound to be some speculation. This column focuses on seven of the best meme stocks to buy for stellar returns in 2024. As I said before, there’s more to investing in meme stocks than just getting rich quickly. You might have noticed that a lot of these meme stocks are likable and nostalgic companies that many investors simply don’t want to see go bankrupt. AMC is generally seen as GameStop’s running mate, but the movie theater company has its own strong legion of supporters called the AMC Ape Army.

Meme stocks, explained

Microcap companies are businesses with market capitalizations of $300 million or less. Their stocks may offer high growth potential, but they may also have low liquidity. There were howls from investors, politicians, and business people who accused Robinhood of manipulating the market. To date, dozens of class-action lawsuits have been filed against Robinhood, and the U.S.

Why the resurgence in meme stocks now?

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. With the internet, chat rooms and discussion boards 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. In terms of the market size, DraftKings expects the total addressable market (from existing states) to increase to $30 billion by 2028. Assuming that the company is active in all states, the potential addressable market can be $50 billion by 2030.

BlackBerry (NYSE:BB)

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. Some of the more popular meme stocks, such as AMC and particularly GameStop, https://forex-review.net/ continue to have higher stock prices than before the short squeezes in 2021. Others, such as Nokia, are trending similar to pre-pandemic lows. Retail investors are also likely to remain keen to pick up on the latest meme stock. Dominated by younger investors, meme stocks are still seen as a way to generate outsized returns in a short period, especially in the face of rising housing costs and inflation in general.

One of the features of meme stocks, especially early on, has been that they tend to be heavily shorted names. This means that there is a lot of short interest in luno exchange review the stock, or that a large proportion of the company’s outstanding shares have been sold short. Both stocks also saw their shares rapidly increase by multiples.

Some of the best meme stocks came into the limelight during the euphoric market rally in 2021. These stocks have gained significant attention on social media, which can potentially impact prices. During 2021, some of the best meme stocks skyrocketed and delivered multibagger returns in weeks. Of course, we are nowhere close to that bullish market sentiment, but there are attractive meme stocks to consider.

Where Are the Meme Stocks Today?

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. Part of the motivation behind the online support for certain meme stocks comes from hedge funds’ short positions in those companies. A meme stock’s value is a result of its hype on social media and not necessarily the company’s performance. Though there is a potential for monumental gains, meme investors are more likely to experience potentially bigger losses as the stocks become overvalued and their price dramatically plummets.

One peak does not necessarily mean there will be more, but it’s possible. Because price gains are driven by what the masses think and not by fundamentals or core value  meme stocks have shown to be highly volatile. After their initial run-up in price, some return to the levels they traded at before they went viral. Others continue to fluctuate in a range between their peak and previous levels. Retail investors who bought meme stocks on their way up may have been left with shares that now trade below the price they were purchased at.

Meme stocks often trade at premium valuations and exhibit extreme volatility. 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. The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

But since becoming a public company, the fintech stock favorite has gotten aggressive, expanding its reach and has added a few million new customers in recent years. As with other fast-moving businesses, SoFi’s biggest hurdle now is how quickly it can focus on breakeven. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.

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. Investing in a single stock usually carries more risk than investing the same amount of money in several different stocks. Diversification across multiple investments helps buoy your portfolio in case one investment sinks. Both companies also allow investor to buy fractional shares of stocks, so you can buy a piece of the action without getting in too deep. Experts generally suggest keeping individual stock picking limited to 5% to 10% of your overall investment portfolio.

I actually found a really cool video, and here’s a transcript from it so that you have an idea of what this is all about. Millennials and Generation Z are buying houses, have a tonne of student loans to pay back, and cannot afford to be loose with their financial investments. But in the same vein, retail trading around meme stocks provides an opportunity to go against the grain.

When did meme stocks become a thing?

The stock, which tumbled below $1 for the first time earlier this week, ended Thursday’s session down 9.2%, hitting a sixth straight record-low close. On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. Another important point to note is that DraftKings expects an adjusted EBITDA of $400 million this year.

Other meme stocks emerged after GameStop, some with varying degrees of success. 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.

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