What is a meme stock? Name, popularity, investment safety unpacked
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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). Just because hype surrounds certain companies doesn’t mean their operations are affected. Whether it is in a future-relevant industry, has a visionary CEO, or is at the forefront of a megatrend that is about to sweep the globe, there is a reason that these companies get so much attention. Anyone buying into these stocks is going to have to pay a premium, and they must be prepared for a lot more volatility.
- Historically, the average annual return for the S&P 500 hovers around 10%.
- WallStreetBets members use the term “diamond hands” to say they plan to hold their stock for the long term.
- For those who choose to invest in meme stocks, it’s a valid question to ask.
- The exact rebate will depend on the specifics of each transaction and will be previewed for you prior to submitting each trade.
Most meme stocks start as small, beaten-down companies that have some name-brand recognition, but are struggling because of an outmoded business plan or adverse market conditions. Often, professional investors at hedge funds are betting against the stocks, short selling the shares in an effort to profit from declining prices. Meme stocks became all the rage among retail investors during the COVID-19 pandemic.
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.
Should You Buy the Meme Right Now?
Bond ratings, if provided, are third party opinions on the overall bond’s credit worthiness at the time the rating is assigned. Ratings are not recommendations to purchase, hold, or sell securities, and they do not address the market value of securities or their suitability for investment purposes. Video game retailer GameStop is recognized as the first meme stock. Meme stocks have been a boon to investors, day traders, and brokerage platforms but companies have also capitalized on the meme stock phenomenon. This raised more than $1.5 billion in the first quarter (Q1) from voracious meme stock buyers. The meme stock frenzy made headlines in January 2021 with video game company GameStop.
Once the share price stalls, selling press mounts as investors race for the exits, leaving those who got in late as well as the short sellers with losses. Meme stocks are a new phenomenon that emerged during the COVID lockdowns in which retail investors buy and sell shares of beaten-down companies. Because a surge in buying activity can send a stock price soaring, there are some benefits to owning meme stocks (and potential meme stocks before they rocket higher). 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%.
Meme stocks are both like memes (due to their potential for viral popularity) and influenced by memes and internet trends. Additional information about your broker can be found by clicking here. Public Investing is a wholly-owned subsidiary of Public Holdings, Inc. (“Public Holdings”). 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.
Where Are the Meme Stocks Today?
The exact rebate will depend on the specifics of each transaction and will be previewed for you prior to submitting each trade. This rebate will be deducted from your cost to place the trade and will be reflected on your trade confirmation. To learn more, see our Fee Schedule, Order Flow Rebate FAQ, and Order Flow Rebate Program Terms trading psychology exercises & Conditions. There’s also AMC Entertainment (AMC), an unsuspecting company struggling amid the COVID-19 pandemic. AMC shares ballooned 1,496.02 percent in the five months ending June 1. Meme stocks are a hard game to play because the peaks and dips can be arbitrary, but they do hold the potential for much larger capital gains.
Bear in mind that meme stocks can be especially volatile, so plan accordingly and be prepared to continue investing more over time. For one, in cases like Game Stop or Bed, Bath and Beyond, the price of shares can rise tremendously based exclusively on online narratives and not on the fundamental valuation of the stock. When you’re ready to buy stocks, your first need to open a taxable brokerage account.
How do meme stock traders pick the companies they target?
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AMC Entertainment Holdings
Meme stock communities pumped the brick-and-mortar retailer Bed Bath & Beyond (BBBY) to extreme levels in the summer of 2022 when it was up 314% for a short period before crashing back down. In 2022, Bed Bath & Beyond announced intentions to sell 12 million shares in a secondary offering as meme stock promoters pumped the value of its stock. However, the stock fell steeply following the company’s announcement of the plan. A meme is an idea or some element of popular culture that spreads and multiplies across people’s minds.
Meme stocks often happened to be hard to borrow, with a high short-interest ratio. GameStop followed suit in 2021, raising nearly $1.7 billion via a secondary offering of 8.5 million additional shares at an average price of more than $200 per share. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.
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 meme stock community can build https://g-markets.net/ considerable clout around a share through online conversation on sites like Facebook, Twitter and Reddit. This can sometimes lead to an overvaluation of the stock as communities attempt to drive up the price of normally shorted shares. Short selling is when an investor—often an institutional investor like a hedge fund—borrows a stock and sells the shares with a plan to buy it back later to return.
