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

what is meme stock mean

The first prominent example of a meme stock in 2021 was struggling video game retailer GameStop (GME). The stock traded $19 per share at the start of the year, but by January 28, it hit an all-time high of $483 per share. If you’re not interested in building and managing your own portfolio of meme stocks blackbull markets review but still want some exposure to the movement, there are some ETF solutions to help. One example is the VanEck Social Sentiment ETF (BUZZ 1.7%), an actively managed portfolio of 75 stocks that rank high in social media conversations. Top holdings in the portfolio include GameStop, AMC, and Palantir.

These situations often start with a short squeeze, and then turn into a self-fulfilling prophecy in the short run on the way up. But once the upward momentum runs out and stocks start to turn down. Look out below – traders will look to exit positions as quickly as possible and will hit any and all bids on the way down until they are out of their positions,” Morningstar Chief U.S. Market Strategist David Sekera explains. The unprecedented rise in meme stocks during 2021 was rather unexpected, but speaks to the power that large pools of money can have on the valuation of financial securities. While Short Sellers who were pressured to cover their positions at elevated prices suffered great losses, investors who are drawn into the meme trading towards the end of the wave also put themselves at great risk of losing money. As a result, short sellers were forced to choose between buying the stocks back at increased prices or waiting out a fall in price.

Can I make money with meme stocks?

The two are similar because you need either existing or new investors to continually come in and purchase the stock at ever higher prices. Which means that while there will be some investors that make money on these trades, and unfortunately, many investors who are trading these stocks will ultimately end up getting burned and will lose money. Investors will need to be extremely careful in getting involved in these situations,” Sekera says.

However, simply writing off all meme stocks as too risky can be a mistake. For the right person, investing in the right meme stock for the right reasons can make a lot of sense. Such information is time sensitive and subject to change based on market conditions and other factors. You assume full responsibility for any trading decisions you make based upon the market data provided, and Public is not liable for any loss caused directly or indirectly by your use of such information. Market data is provided solely for informational and/or educational purposes only.

The term FOMO is an acronym that stands for the ‘fear of missing out’, originally coined by Patrick J. McGinnis in 2004 and used largely by the highly connected millennial and Gen Y generations. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. This Canadian company is known for pioneering the smartphone, but it quickly went by the wayside when Apple revolutionized the space. These days, Blackberry is a software firm providing endpoint security software and other Internet of Things management products for customers such as the auto industry. Rivian is currently in the midst of “production hell,” a phrase coined by Tesla CEO Elon Musk when his company was trying to ramp up factory production to stem cash losses.

Taking any particular advice as scripture comes with its own set of risks. When large amounts of retail investors band together, the upswings can be dramatic. It’s also a symbol of market democratization, something that everyday investors have been working toward for decades. Investopedia reports that Single Stock ETFs have been introduced to provide “leveraged long or short positions” on meme stocks like Tesla. A short squeeze is when a shorted stock’s shares rise sharply in price and buyers close out to avoid losing big.

what is meme stock mean

And yet, studies have shown that even the most experienced of day traders lose money. So while it might be a positive thing that these meme stocks have increased interest in the stock market, in the end, experts recommend following a much more prudent investing strategy. 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. Commission-free trading attracted a significant number of retail investors with a limited understanding of the stock market.

Why is it called a meme stock?

Just as much as there can be highs during times of high demand, so too can there be lows amid mass exoduses. Many meme stocks are popularized because they’re heavily shorted, which can play into the stock’s performance as well. One peak does not necessarily mean there will be more, but it’s possible. Meme stocks have also caused traders to be more aware of what sources they use for investment research.

  1. 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.
  2. Take every bit of due diligence with a grain of salt and form your own opinions about meme stocks.
  3. This raised more than $1.5 billion in the first quarter (Q1) from voracious meme stock buyers.
  4. Its (free cash flow was negative $1.8 billion in Q1 of 2023. Rivian needs to get itself to breakeven before its cash and short-term investment balance ($11.2 billion at the end of March 2023) dries up.

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What Are Meme Stocks and Are They Worth the Investment?

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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. Robinhood and Webull are two popular trading platforms for active investors, boasting easy-to-use mobile investing apps. Plus, they offer IRAs (traditional, Roth and rollover) so users can manage their retirement funds along with their stocks all in one place. In addition to GameStop, examples of meme stocks include AMC, and BlackBerry. While the companies themselves have not performed well in recent years, all three stocks went viral on a popular Reddit forum, and saw massive price hikes in early 2021, specifically on January 27.

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The rise in stock price usually has little to do with the company’s performance. “No, investors should not buy into the meme mania – it should be contained within the realm of day-traders who are willing to speculate on bitmex forex momentum. Part of the reason Meme stocks such as these have arisen in the first place is FOMO, or fear of missing out, which is fuelled by too many people touting  about how much money they are making on these trades.

Aided by AMC’s high level of short interest, retail investors drove up its price to $63.97 by May 2021. AMC took advantage of its meme stock status and created a series of secondary offerings which raised more than $1.5 billion in Q1 of 2021. Retail investors responded to calls to action on social media by buying large numbers of shares in those companies which caused a short squeeze on those shorting the stocks, causing losses for some major investors and fp markets review funds. 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. Part of the motivation behind the online support for certain meme stocks comes from hedge funds’ short positions in those companies.

The word “meme,” from the ancient Greek word “mimema” — meaning imitation — is used to describe information that is imitated and often spread via pop culture references on social media. Thus, a meme stock is a shared investing idea imitated by other investors. Additional information about your broker can be found by clicking here. Public Investing is a wholly-owned subsidiary of Public Holdings, Inc. (“Public Holdings”).

SoFi’s financial services — all unified together via a singular app — got its start in the student loan niche of the industry. 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. High-Yield Cash Account.A High-Yield Cash Account is a secondary brokerage account with Public Investing. Funds in your High-Yield Cash Account are automatically deposited into partner banks (“Partner Banks”), where that cash earns interest and is eligible for FDIC insurance. Your Annual Percentage Yield is variable and may change at the discretion of the Partner Banks or Public Investing.

Another heavily shorted company was BlackBerry Ltd., the Canadian maker of the famous BlackBerry phone which, in essence, was killed off by Apple’s iPhone. Beginning in January 2021, BlackBerry’s price was driven up by retail investors from around $9 to a high of $28.77. Today, Blackberry provides security solutions and Internet of Things software, especially for the auto industry.

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