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Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. 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.
Dominated by younger investors, meme stocks are still seen as a way to generate outsized returns in a short period of time, especially in the face of rising housing costs and inflation in general. But, meme stocks also remain very volatile and risky, and retail investors are likely to be the ones to experience the most losses if it all comes crashing down. Roundhill Investments came out with a meme stock-focused ETF in December of 2021 under the ticker symbol ‘MEME’.
While the crypto world is going gung-ho about NFTs and meme coins/stocks, the excitement is also spreading out in areas that have a history of resisting crypto or at least doubting it. Mr. Veerman has no plans to stop buying or cash out; he believes digital collectibles will outlive trading cards. He acknowledged that there would be “lots of price volatility” along the way. Crum’s journey into business began in high school when she enrolled in business and personal finance classes — she was sometimes the only girl in her class. It sparked her interest enough to pursue it as her major at the University of Kansas.
Palantir has concentrated exposure working for government entities, but it is quickly working to expand further into the private sector. Cushion theory argues that a shorted stock’s falling price will again rise as short-sellers eventually purchase shares to cover their short position. A short squeeze occurs when a stock moves sharply higher, prompting traders who bet its price would fall to buy it to avoid greater losses. 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. 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 in spectacular fashion.
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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. , the movie theater chain that saw flagging profits amid the COVID-19 pandemic, and Blackberry Limited , the outmoded smartphone maker.
- Trading could be impacted Tuesday as inflation reports are released, stocks lower, 3Q earnings are reported, the rail strike possibility grows, and the student loan handout is halted.
- A similar negative sentiment also showed for meme stocks — a term used to describe shares of companies whose values are often driven by retail trading mania.
- A rise was also seen on Jan. 2, when DOGE made an upswing from $0.004.
- Still, Monday’s sell-off doesn’t make a huge dent in the meme stocks’ meteoric rallies this year.
- He acknowledged that there would be “lots of price volatility” along the way.
- However, GameStop’s new leaders have provided few details about their turnaround strategy and have yet to share an outlook.
Third-quarter earnings reports also continue with Disney, News Corp. and more. AMC Entertainment Holdings Inc. and the company’s AMC preferred equity units, known as APEs, continued their rally before opening bell on Monday, climbing 12.2% and 11.2%, respectively. Fellow meme stock GameStop Corp.’s stock rose 2.3% before opening bell, after ending Friday’s Fusion Markets FX Broker Review session up 4.9%. Movie theater chain and meme stock darling AMC reported its 12th consecutive quarterly loss last week, sending the company’s stock falling 7.7% last Wednesday. As the shares have soared, investors have jumped in to short GameStop’s stock, meaning they were selling it with the hopes that it will decline to pocket the difference.
For the right person, investing in the right meme stock for the right reasons can make a lot of sense. While some thought that the meme stock craze would be short-lived, the phenomenon remains in-force months later. For instance, in the summer of 2022, meme stock communities have pumped the brick-and-mortar retailer Bed Bath & Beyond to extreme levels, where it was up 314% for a short period before crashing back down. 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. Despite most IFAs being anti-crypto, more than a third of the surveyed advisers agreed that crypto will become a legitimate asset class in the future.
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While Crum used a more hands-on approach to investing, picking individual stocks can be incredibly difficult and risky. Consider a more passive investment strategy like using a robo-advisor, such as Wealthfront of Betterment, or simply buying into an index fund. Some meme stocks don’t trade on any fundamentals, and returns can suddenly reverse course, causing the company to lose its luster among individual investors.
Ultimately, a short seller may run out of available funds to hold on to the short and will be forced to buy back the shares at a higher price and close out the position. If many shorts are forced to cover at once, it adds additional upward pressure on the stock’s price as they are all forced to buy the stock and cover at ever higher prices. This is known as a short squeeze, and it accelerates a stock’s price increases as more and more short sellers are forced to bail out to cut their losses. Indeed, as these How To Choose a Reliable Forex Broker became recognized meme stocks, members of r/wallstreetbets and similar outlets began to acknowledge the humor (for the “lulz”) of seeing such legacy companies emerge from the ashes in the stock market. Meme stock activity was given a great boost from bored individuals stuck at home during COVID-19 lockdowns combined with zero-commission brokerage apps like Robinhood. In fact, Robinhood saw overwhelming trading volume in meme stocks at times, causing multiple trade delays, outages, and platform crashes.
While that could slow as leisure spending resumes, interest rates remain low, pushing people to take more risks with their money. Prior to the pandemic, many young Americans were not investing in the stock market. According to a 2018 Gallup poll, only 37% of Americans under 34 years of age owned stocks. That number has quickly increased as the emergence of investing apps like Robinhood have taken hold during the pandemic. Crum uses her TikTok to share her story of stock market success, while also educating viewers about investing. She’s found so much success on the platform that she was featured in a Wall Street Times story in April.
Some business fundamentals and economic trends can go a long way toward balancing out what can be fleeting social media trends or hopes of a short-term short squeeze. 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 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.
Growth and expansion into new territories eventually lead to investment inflow. For instance, Meme.com – often termed the CoinMarketCap for Memetic Coins – has raised $5 million. Meme.com positions itself as the explorers of fine memes and trends. It helps users measure the value of memes – an idea that has caught the imagination of its users. During the Donald Trump presidency, the United States Space Force came into being as a branch of the armed forces. During the middle of June, the USSF decided to release a series of NFTs or non-fungible tokens.
By the end of 2020, she had expanded her portfolio to include other companies, most notably, the famous meme stocks AMC Entertainment and GameStop. Crum used the same logic of buying stocks beaten down by the pandemic — these two stocks were so shorted and cheap that they had almost nowhere else to go but up. From there, the number of retail investors buying shares and call options snowballed, driving up the price. The price increase drove out some short sellers early on as it attracted various big-name investors and public figures, such as Elon Musk and venture capitalist Chamath Palihapitiya. One of the features of meme stocks, especially early on, has been that they tend to be heavily shorted names.
A Meme Stock Glossary
A Reddit group, by the name of WallStreetBets, pushed people into buying GameStop shares to combat the hedge funds who were shorting or betting against the Gamestop stock. Following that spirit, another group named SatoshiStreetBets decided to pump up the price of some cryptocurrencies. DogeCoin, named after the Shiba Inu “Doge” meme, got the benefits of these concerted efforts. One poster claimed Doge to be the Crypto GME. Doge added more than 7 billion in market capitalization in a single day. Inspired by the spirit of the crypto market that took Gamestop as an example to follow, Gamestop is about to release an NFT platform of its own.
Meme stocks lure investors with the promise of potentially big returns in little time. However, for those seeking sustainable long-term gains , look to build a portfolio of multiple meme stocks that have more than just a one-off chance of providing returns. Bear in mind that meme stocks can be especially volatile, so plan accordingly and be prepared to continue investing more over time. If you’re an investor looking for a longer-term holding , there are some important factors to consider before buying a meme stock.
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Yet it can’t stop people from dabbling in risky alternative assets on other platforms. The biggest driver of risky investment manias has been a surplus of cash in people’s pockets. Bank deposits grew further in the first three months of the year, hitting $18.5 trillion, compared with $15.8 trillion in the same period of 2020.
However, cryptocurrency adoption continues to grow in the U.K., with a recent survey showing that more Brits invested in digital currencies than stocks in 2020. With a burgeoning market around, this uniqueness of meme.com’s innovation was enough to attract a group of blockchain-focused venture capital funds and angel investors for funding of $5 million. Its share price and market capitalization were around $340 and $23 billion, respectively, at one point, putting the company on par with large corporations that actually make money as Insider’s Josh Barro wrote. On January 11, 2021, GameStop officially welcomed Cohen to its board of directors. And on the same day, members of the Reddit forum r/wallstreetbets banded together to collectively buy up GameStop shares. In July 2020, GameStop CEO George Sherman told Dallas Innovates that the company’s e-commerce sales spiked 519% in the first three months of 2020.
That seller must borrow shares from somebody who is long the stock in order to sell them. As more and more shares are sold short in this way, there are fewer shares left available to borrow. Once a stock becomes hard to borrow, even the most motivated short seller may be unable to do so.
Investopedia does not include all offers available in the marketplace. Meme stocks are actual stocks listed on exchanges and available for trade. However, critics argue that their price performance and appeal have little to do with their fundamentals and much to do with their entertainment value as speculative playthings, much like casino games.
So-called meme stocks became a hot investment theme for day traders and retail investors early in 2021, resulting in short squeezes on hot stocks at the time such as GameStop Corp. and AMC Entertainment Holdings, Inc. . Named after the virality of internet memes found on social media, these stocks saw online communities form around them to boost and hype their prospects, even though meme company fundamentals remained questionable. Meme stocks have been all the rage among retail investors during the COVID-19 pandemic. Meme stocks are created when a company’s shares catch fire with individual investors on social media platforms such as Reddit and quickly skyrocket in price. But, as many traditional investors and analysts point out, these viral stocks can be very risky since they rely on high interest from small investors to sustain the stock prices’ liftoff “to the moon.” Simply put, meme stocks skyrocket in price in a short period because of a sudden surge in interest online or on social media and subsequent buying among small individual investors.
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. Crypto traders began complaining about IronFX Forex Broker Review their inability to access the app shortly after the sudden rise. The platform disabled deposits, only allowing its users to buy cryptocurrencies with already existing funds. Investors will be watching Tuesday’s midterm election results to see how it will impact the stock market.
