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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. So a meme stock is a shared investing idea imitated by other investors. Both companies also allow investors to buy fractional shares of stocks, so you can buy a piece of the action without getting in too deep.
Can Meme Stocks Lead to Big Losses?
And if you are a FOMO-type person, you may enjoy being part of the action. To participate, you need to be connected to the relevant social media sites. Also, no research or knowledge of the stock market or the company you invest in Cryptocurrency trading for beginners is required. In 2023, the movie Dumb Money told the story of Gill and his earlier meme-stock journey. The International Review of Economics & Finance wrote that meme stocks became popular through the social media platform Reddit.com, specifically, subreddit.com, also known as WallStreetBets. “Retail trading in meme stocks is facilitated by social media, which are used as coordination devices to synchronize buy signals,” the review wrote.
- The meme stock definition generally refers to a stock whose demand is fueled by online attention rather than fundamentals.
- A well-timed entry during a viral phase can yield outsized returns within hours.
- Short selling happens when traders sell borrowed shares, expecting the price to fall so they can buy them back cheaper.
- Meme stocks often trade far above fair value.When sentiment shifts, they return to fundamental levels abruptly, catching late buyers off guard.
Increased Market Participation
This broader participation has made investing more accessible and engaging. Some believe that meme stock communities coordinate their efforts to influence the prices of these shares but meme stock shareholders are often an unorganized set of independent individuals. Their independent actions have been shown to collectively initiate short squeezes in heavily shorted names. Meme stocks can become overvalued relative to fundamental technical analysis as a result. As a result, the early investors sell their shares at the peak price, causing the stock price to crash.
“A meme stock is any publicly traded stock with a price performance that’s strongly influenced by activity on social media,” according to Britannica Money. Meme stocks are a relatively new phenomenon, beginning in late 2020 and early 2021. According to the Corporate Finance Institute, it was then that online groups and communities developed interest in select companies’ shares and generated positive stories that they posted online to attract buyers. If you’re not interested in building and managing your own portfolio of meme stocks but still want some exposure to the movement, there are some ETF solutions to help.
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These sites helped promote and drive up the prices of so-called dotcom stocks in the late 1990s and early 2000s. It was a bubble that famously burst with far-reaching economic consequences. Traditional investing is all about focusing on the fundamentals of a company. This means looking at a company’s earnings, revenue, and overall performance to determine its value.
Meme Stocks Explained: Examples, Advantages, and Risks
Though the idea of amassing crazy wealth overnight is obviously appealing, the reality is that the odds are heavily stacked against anyone trying to outsmart the market. The meme investors who walked away with a lot of money were arguably just very lucky. This kind of trading is ultimately not that much different than gambling. Let’s dive into the latest in the land of meme stocks and why it might matter for you.
Should beginners invest in meme stocks?
Meme stocks are shares of companies around which online communities have formed to promote and build narratives. Viral posts and memes create excitement, encouraging more people to buy, which pushes the stock price higher. 2025’s revival of meme stocks can connect to Americans’ beliefs around what drives financial success.
However, its passionate fan base and viral attention sometimes cause meme-like price movements, especially during social media buzz. A clear meme stock example is GameStop (GME), whose price surged in 2021 after going viral on Reddit’s r/WallStreetBets. AMC Entertainment (AMC) followed soon after, fueled by online hype rather than company fundamentals.
However, having a solid financial plan and putting time into learning about investments can pay off for the long term — whether it’s figuring out how to start investing or navigating market volatility. Buying or selling a stock based on what you read on social media is risky. As with earlier meme-stock episodes, trading interest in these names diminished quickly after the initial burst of activity. In true viral fashion, meme stocks rapidly became a thing in the early part of 2021. As long as online communities exist, there will be room for social media stock surges tied to collective excitement. This volatility-driven investing creates opportunities but also exposes traders to rapid losses.
Keep core investments grounded in stable assets and treat these trades as short-term experiments. Short selling happens when traders sell borrowed shares, expecting the price to fall so they can buy them back cheaper. If the price rises instead, short sellers lose money and may need to close positions.
- Traditional investing is all about focusing on the fundamentals of a company.
- 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.
- Meme stocks are often hard to borrow with a high short-interest ratio.
- These trading psychology factors such as excitement, belonging, and rebellion, help explain why meme stocks thrive despite obvious risks.
These are stocks that soared not because of earnings or innovation, but because the internet decided they would. Meme stocks are highly volatile, meaning that you can lose a lot or everything when the price plummets. Owning one can be anxiety-provoking, too, as you watch the stock price zoom up and then plummet. “It’s just like wearing the trendiest clothes or knowing the latest viral challenge, people use social media as a way to connect and get views,” said Giles. “Hearing the latest stock trend is fun and makes people feel like they are ‘in the know.’ It also makes people dream about what it would be like to get rich. There’s a good chance you have seen the term “meme stock” splashed across headlines before — even if you aren’t actively following business news.
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. 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 as these became recognized meme stocks. Meme stock activity was given a great boost from bored individuals who were stuck at home during COVID-19 lockdowns combined with zero-commission brokerage apps like Robinhood. The Robinhood app saw overwhelming trading volume in meme stocks at times, causing multiple trade delays, outages, and platform crashes. This led to user outrage along with class action lawsuits as well as regulatory fines and restitution of approximately $70 million. The YouTube persona Roaring Kitty posted a viral video laying out the case for why shares of brick-and-mortar video game retailer GameStop Corp. (GME) could soar from $5 to $50 per share in August 2020.
“In some cases, meme-stock investors saw opportunities to react against short sellers who were looking for a stock to decline. Other meme-stock companies from the first wave were AMC (AMC), BlackBerry (BB) and Bed, Bath and Beyond. If you’re an investor looking for a longer-term holding (think years rather than days, weeks, or months), there are some important factors to consider before buying a meme stock. 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.