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      Meme Stocks: Separating Fact from Fiction

      By Wasim Omar

      Published on

      April 5, 2023

      7:03 AM UTC

      Last Updated on

      July 18, 2023

      5:53 PM UTC

      Meme Stocks: Separating Fact from Fiction

      Meme stocks have been the talk of the town in recent times, capturing the attention of both seasoned investors and the general public. But what is a meme stock?

      The term “meme stock” refers to a stock that experiences a sudden surge in popularity, driven primarily by social media hype and online communities.

      These stocks are often associated with well-known companies and are typically fueled by a surge of interest from amateur investors looking to get in on the action.

      While some argue that meme investments are a surefire way to make a quick buck, others caution that they can be risky investments, with their prices subject to wild fluctuations and little underlying value.

      Despite the mixed opinions surrounding meme stocks, there is no denying that they have become a force to be reckoned with in the world of investing, with their impact being felt across the financial markets.

      What Is a Meme Stock?

      A meme stock is a term used to describe a stock that has gained viral popularity among the general public, primarily due to heightened social sentiment and online buzz.

      These stocks often have a cult-like following, with investors driving up the stock price based on social media hype and speculation rather than underlying fundamentals.

      The surge was largely fueled by a coordinated effort by amateur investors on social media platforms like Reddit, who encouraged others to buy shares of GameStop and hold them in order to drive up the price.

      This strategy, known as a “short squeeze,” worked by forcing hedge funds that had bet against the stock to buy shares to cover their losses, further driving up the price.

      While meme stocks have made some investors a lot of money, there are also risks associated with investing in these types of stocks.

      One concern is that the hype and speculation around a meme stock can drive up the price to unsustainable levels, leading to a sharp drop in value when the bubble eventually bursts.

      In addition, some meme stocks have been associated with pump-and-dump schemes, in which investors artificially inflate the stock price and then quickly sell off their shares, leaving other investors holding the bag.

      What Is Meme Investing?

      One group that has been involved in meme stock investments is hedge funds, which are investment funds that pool money from high-net-worth individuals and institutional investors with the goal of generating high returns.

      Some hedge funds have been known to short meme stocks, which means they bet against the stock price, expecting it to go down.

      However, the coordinated effort by amateur investors on social media platforms like Reddit to drive up meme stock prices, including GameStop and AMC Entertainment, caught many hedge funds off guard, leading to significant losses.

      GameStop: The First Meme Stock

      GameStop (GME) is often considered the first meme stock, as it was the first stock to gain widespread attention on social media platforms like Reddit and Twitter in early 2021.

      The surge in GameStop’s stock price was largely fueled by a coordinated effort by amateur investors to drive up the price through a short squeeze.

      short squeeze is a strategy in which investors bet against a stock by shorting it, or borrowing shares and selling them in the hopes of buying them back at a lower price and pocketing the difference.

      However, if the stock price rises instead of falling, short sellers are forced to buy back shares at a higher price to limit their losses, which can lead to a further increase in the stock price.

      In the case of GameStop, amateur investors on social media platforms like Reddit encouraged others to buy shares of the company and hold onto them, driving up the price and forcing hedge funds that had bet against the stock to cover their losses by buying shares at a higher price.

      This led to a surge in the stock price from around $20 in December 2020 to over $400 in late January 2021.

      The GameStop saga brought attention to the power of retail investors to challenge Wall Street and the established financial system.

      It also raised questions about the role of social media in investing and the potential risks and rewards of meme stock investment.

      Terms Connected to Meme Stocks

      If you’re diving into the world of meme stock investment, it’s crucial to understand the lingo that comes with it. Knowing these terms will help you navigate this unique and volatile market like a pro. So, let’s get started:

      • ATH

        ATH stands for “All-Time High.” It’s basically the highest price a stock has ever reached and is seen as a major milestone.

        When a meme stock hits its ATH, it can mean exciting things are happening, like momentum or a potential peak.

      • BT(F)D

        This refers to the “Buy the (Freaking) Dip” strategy. This is all about seizing opportunities when stock prices take a temporary nosedive.

        The idea is to buy low, anticipating a rebound and potential profits down the road.

      • Diamond Hands

        This term is all about unwavering conviction. Those with diamond hands—strong, unshakeable, and not easily influenced by market fluctuations.

        Diamond hands symbolize the ability to hold onto your stocks despite all the ups and downs, truly believing in their long-term value and potential gains.

      • Paper Hands

        On the flip side, there are paper hands. These are the investors who fold at the first sign of trouble.

        They lack the conviction to weather market volatility and tend to sell off their stocks quickly. Sadly, they often miss out on potential gains because they don’t have the staying power.

      • Tendies

        In the meme stock world, “tendies” is a playful term used to describe the profits or gains you make from your investments.

      • To the Moon

        When meme stock enthusiasts say, “To the moon,” they mean they’re expecting their stock’s price to skyrocket.

        We’re talking about prices that reach incredible heights as if they were destined for the highest peaks.

      • YOLO

        YOLO perfectly captures the daring spirit of meme stock investing. It stands for “You Only Live Once” and is all about taking risks, embracing the high stakes, and going for those potentially massive gains.

        With YOLO comes increased volatility and uncertainty, causing a high beta with such stocks. This is why it is important to tread very carefully.

      What Is a Meme Stock ETF?

      A meme stock ETF, or exchange-traded fund, is a diversified investment vehicle that pools together a suitable meme stock collection.

      These ETFs allow investors to gain exposure to a broad portfolio of these volatile stocks, rather than investing in individual companies.

      By doing so, they aim to capture the potential upside of meme stock investing while also spreading the risk across multiple holdings.

      Meme stock ETFs provide a unique opportunity for investors to participate in this exciting and sometimes unpredictable corner of the market.

      By diversifying their holdings, investors can potentially mitigate the risks associated with individual meme stocks while still enjoying the potential for substantial returns.

      How Does Social Media Influence the Price of Meme Stocks?

      How Does Social Media Influence The Price Of Meme stocks

      These platforms provide a forum for amateur investors to share information and ideas about specific stocks, which can lead to a surge in buying activity and drive up the stock price.

      In the case of meme stock investment, social media platforms have been used to promote a coordinated effort to buy and hold shares of specific stocks, often with the goal of driving up the price and forcing short sellers to cover their positions.

      This can create a short squeeze, which further increases the demand for the stock and drives up the price.

      In addition to promoting a surge in buying activity, social media can also be used to spread rumors and false information about specific stocks.

      This can lead to increased volatility and can make it difficult for investors to make informed decisions based on accurate information.

      However, it’s important to note that social media is just one factor that can influence meme stock prices.

      Other factors, such as company performance, economic indicators, and global events, can also have a significant impact on stock prices.

      When Did Meme Stocks Start?

      The term “meme stock” is a relatively recent phenomenon and gained widespread attention in early 2021 during the GameStop saga.

      However, the concept of stocks gaining viral popularity through social media buzz and hype is not entirely new.

      In fact, there have been instances in the past where stocks have experienced significant price surges due to online buzz and hype.

      For example, in 2016, the stock price of Canadian drugmaker Concordia International Corp surged after an anonymous user on Reddit encouraged others to invest in the company.

      In 2018, shares of electric automaker Tesla rose sharply after a tweet from CEO Elon Musk.

      However, the coordinated effort by amateur investors on social media platforms like Reddit to drive up the stock price of GameStop and other meme stocks in early 2021 brought the concept of meme stocks into the mainstream.

      Since then, there have been several other stocks that have gained viral popularity and attracted the attention of amateur investors on social media platforms, leading to significant price surges and increased volatility.

      Some Examples of Meme Stocks?

      Some well-known meme stock examples include GameStop (GME), AMC Entertainment (AMC), BlackBerry (BB), Nokia (NOK), and Bed Bath & Beyond (BBBY).

      These stocks gained viral popularity on social media platforms like Reddit and Twitter to gain overnight popularity

      AMC Entertainment saw a surge in price in early 2021, as retail investors on social media platforms encouraged others to buy and hold shares of the company in order to drive up the price and force short sellers to cover their positions.

      BlackBerry, Nokia, and Bed Bath & Beyond are other examples of stocks that gained viral popularity on social media platforms and saw significant price surges as a result of retail investor enthusiasm.

      Who Wins and Loses from Meme Stock Investing?

      The winners and losers of meme stock investing can vary depending on the specific circumstances surrounding each stock.

      In general, however, the biggest winners of meme stock investing tend to be the individual retail investors who bought shares of the stock early on and saw significant gains in their investments.

      These investors may have held on to their shares as the price continued to rise or sold them at a profit before the price eventually fell.

      Short sellers, on the other hand, can be big losers in meme stock investing.

      Short sellers borrow shares of a stock and sell them with the expectation that they will be able to buy them back at a lower price in the future, thereby profiting from the difference.

      However, when a stock experiences a sudden surge in price, short sellers can be forced to cover their positions by buying shares at a higher price, which can lead to significant losses.

      In some cases, companies themselves can also be impacted by meme stock investing.

      For example, companies have seen significant increases in their stock prices due to meme stock investing, which allowed them to raise additional capital by selling additional shares at the inflated price.

      However, these companies also face increased scrutiny and pressure to meet high investor expectations, which can be challenging.

      Is The Meme Stock Craze Over?

      The meme stock craze appears to have cooled off somewhat since its peak in early 2021, but it is not entirely over.

      While the initial surge in stocks like GameStop (GME) and AMC Entertainment (AMC) has subsided, there are still instances where individual stocks gain viral popularity on social media platforms and experience significant price volatility.

      During the Covid pandemic times, the stock peaked at $3 to surge past $300, causing historical market volatility and serious losses for hedge funds that short-sold it.

      Also, shares of the cryptocurrency exchange Coinbase surged after a tweet from CEO Brian Armstrong, in which he hinted at the company’s plans to add new cryptocurrencies to its platform.

      The tweet led to increased social media buzz and speculation, which in turn drove up the price of Coinbase’s stock.

      It remains to be seen whether the meme stock craze will return to the heights seen in its early days, but the impact of social media on the stock market is likely here to stay.

      Retail investors have found a new level of power through online communities, and the ability to quickly spread information and influence sentiment on social media platforms is a powerful force that is not going away anytime soon.

      What Are Meme Stocks, and Are They Worth the Investment?

      Whether or not meme stocks are worth the investment and how to find the best meme stocks

      depends on a variety of factors, including an individual’s risk tolerance and investment goals.

      While some investors have seen significant gains from meme stock investing, others have suffered losses due to the unpredictable nature of these stocks.

      Meme stock investment is generally considered to be a high-risk, high-reward strategy that should only be undertaken by investors who have a strong understanding of the risks involved and are willing to accept the potential losses.

      Top Meme Stocks Right Now

      • Bed Bath & Beyond

        It has been a while since Bed Bath & Beyond (BBBY) was at its best. The company had already struggled in the 2010s with e-commerce onslaughts and slowly dwindling sales, contributed to by a pandemic and subsequent lockdown.

        Bed Bath & Beyond, however, is reaping the benefits of the normalization of the economy and is building a new omnichannel business, both in-store and online.

      • Blackberry

        This Canadian company Blackberry is among the best meme stocks. It pioneered smartphones but faced stiff competition from the likes of Apple (AAPL). Today, Blackberry is primarily known for its endpoint security and IoT management products.

      • Palantir

        Palantir (PLTR) is among the best meme stocks, and it quickly attracted investors. Using big data and AI, the company assists organizations in updating operations for the digital age.

        While Palantir primarily works with government entities, it is quickly expanding into the private sector.

      • Nokia

        The Nokia (NOK) brand was also a pioneer of the mobility movement in the late 1990s and early 2000s. However, Nokia has moved away from consumer products like cell phones and shifted its focus to equipment for telecom companies.

        The development of 5G mobile networks is now underway in earnest, which could result in Nokia’s growth taking off again and resulting in business equity maximization.

      • Tesla

        Tesla (TSLA) is an exciting choice for meme stock investors. Over the past decade, its shares skyrocketed from $6 to $674, defying gravity and enriching loyalists.

        With its market cap of around $710 billion, it’s comparable to the “Meme Stock Mania” of 2021.

        Financially, Tesla has shown impressive growth, with soaring revenues, cash flow, and net earnings. Despite the excitement, prudent evaluation is crucial before investing.

      • Tilray Brands

        Tilray Brands (TLRY) is among the top meme stock examples and has seen a correction of 37% this year. Positive news on the marijuana banking bill is expected, which can trigger a strong rally causing meme stock hype.

        Tilray aims for positive cash flow by the end of 2023 and just acquired Hexo Corp. for Canadian market growth. With the potential for a sharp reversal, TLRY is worth considering.

      Regulation of Meme Stocks, or Lack Thereof

      When it comes to meme stock investment, one thing that stands out is the lack of specific regulations or SEC filing requirements governing them.

      Unlike traditional stocks, the meme stock phenomenon is driven more by sentiment, hype, and viral trends rather than traditional market fundamentals.

      This unique nature poses a challenge for regulators and investors alike.

      Currently, meme stocks operate within the existing regulatory framework, but their unpredictable and volatile nature has prompted discussions about the need for updated guidelines.

      Some argue that stricter regulations are necessary to protect investors from potential market manipulation, while others believe that overregulation may stifle innovation and limit the democratic nature of investing.

      As an investor considering meme stock investment, it’s important to stay informed about the evolving regulatory landscape and exercise caution while navigating this exciting but highly unpredictable market.

      What To Know Before Investing in Meme Stocks

      Before you dive headfirst into the world of meme stock investing, let’s have a discussion about some essential things you should know.

      What to know before investing in meme stocks

      Taking a moment to understand these key points will save you from potential headaches and help you make smarter investment decisions in the wild and unpredictable realm of the meme stock concept.

      • Do Your Research

        Meme stock investment can be like that popular internet meme you just can’t escape—they’re everywhere! But don’t chase hype alone. Take a deep breath and do some serious fundamental research.

        Look beyond the memes and dig into the fundamentals of the company behind the stock. Are they financially solid? Do they have a competitive edge? Analyze their long-term prospects, not just their viral status.

      • Only Use Money You Can Afford to Lose

        The meme stock phenomenon can be exciting, but it can also be stomach-churning. So, here’s the golden rule: only invest money you won’t lose sleep over.

        It is crucial to not gamble with your life savings or mortgage your assets. Set aside a portion of your portfolio that you’re willing to bid adieu to if things go south.

      • Set A Stop-Loss

        Meme stock investment can be risky business. But fear not! You can equip yourself with a safety net called a stop-loss order.

        It’s like a lifeline that automatically sells the stock if its price plummets below a predetermined threshold.

        This nifty tool can save you from falling into a financial abyss, especially when meme investments decide to take a crazy downward plunge.

      • Don’t Get Caught Up in The Hype

        The meme stock phenomenon is one that often stirs up frenzy and euphoria.

        But hold your horses! Meme investments often thrive on hype, and things can get way out of hand. Don’t let FOMO affect your decisions.

        Take a step back, breathe, and remember that the hype train can derail just as quickly as it gains steam.

        Stay grounded and evaluate the actual fair market value and long-term viability of the stock before jumping on the bandwagon.

      Conclusion

      In conclusion, meme stocks have gained significant attention in recent times due to the power of social media and the rise of retail investing.

      These stocks are often high-risk, high-reward investments that require investors to do their own research and make informed decisions.

      The unpredictable nature of meme stock investment has led to significant gains for some investors and losses for others.

      Online communities are clearly empowering retail investors, and social media’s influence on the stock market is likely to last.

      Investors must remember, though, that sentiment on social media can be fickle, and that meme investment is not for everyone.

      Risk tolerance and investment goals should ultimately determine whether an individual should invest in a meme stock.

      So, making investment decisions should not be solely based on social media buzz, even though these stocks are exciting and tempting.

      FAQs

      Why Are They Called Meme Stocks?

      Meme stocks get their name because they are driven by online communities and social media trends, where memes often play a significant role in generating hype and attention around certain stocks.

      Are Meme Stocks Real Investments?

      Yes, meme stocks are real investments in the sense that you can buy and sell them on the stock market.

      However, they are characterized by high volatility and are often driven more by sentiment and social media buzz rather than traditional fundamental analysis.

      Can I Make Money with Meme Stocks?

      Yes, it’s possible to make money with meme stocks, but it comes with considerable risks.

      Due to their volatile nature, meme investments can experience rapid price fluctuations, providing opportunities for short-term gains.

      Where Are the Meme Stocks Today?

      The meme stock landscape is constantly evolving, with the popularity of specific stocks changing over time.

      It’s essential to stay up-to-date with the latest trends and social media chatter to identify which meme stocks are currently making waves in the market.

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