Unless you are living under a rock, everyone knows that memes are the highlight of social media. So, what are meme stocks? Meme stocks are shares that gained popularity and can even have a cult-like following through social media. The first and arguably the most well-known meme stock is Gamestop. Remember in 2021 when there was a craze about Gamestop’s stock and many people were either upset that they didn’t invest or overjoyed that they did? That’s because the stock had been gaining popularity for years prior due to Youtuber, Keith Gill. He made videos and posted tweets predicting a short squeeze of the stock and when it finally happened, a lot of people had major gains.
So are meme stocks good or bad?
Meme Stock Pros and Nos
Just like other factors surrounding investing, meme stocks do not fit into an all good or all bad category. There are both advantages and disadvantages to the subject.
Pros:
- Has potential for huge gains: Gamestop jumped from $5 to over $354 in just a matter of a couple of months. This resulted in an additional 3.5 million shares that were sold!
- Retail investors have the upper hand: Meme stocks have become the first battle between retail investors and institutional investors. Retail investors are proving to be just as powerful as institutional investors!
- Could be here to stay: The presence of social media means meme stocks are likely here to stay especially due to Millenials and Gen Z.
Nos:
- Possible lack of fundamentals: Since memes become viral through social media, people have the potential to say anything and others follow.
- High Volatility: Stocks that are passive and perform over time tend to do better than active trading. This means that meme stocks have a higher chance of potential losses in the near future due to the quick jump of its share price.
- Potential Stock Dilution: This can happen when the number of outstanding shares increases and the shareholders own a significantly less piece due to the company issuing new shares.
Where are some Meme Stocks now?
Gamestop– After its short squeeze in early 2021, the prices almost instantly dropped from $325 to $40 within a month. However, in the next month the share price went up to $264. From then, the prices have been quite shaky but currently reside at around $142.
AMC- In 2020, AMC was on the brink of bankruptcy until a group of investors on Reddit called the WallStreetBets rallied together to buy AMC shares. This resulted in the stock jumping from being $12 in May to $59 by mid-June. This significantly helped their company and even had their best quarter in 2022. Now the shares are priced at $12.
Revlon: The newest member of being named a meme stock, Revlon recently went through a similar journey as AMC. The company filed for bankruptcy and in three days, many retail investors bought shares resulting in the stock quadrupling. Right now, the stock is $7.
Tesla: Although Tesla didn’t experience a short squeeze like many other meme stocks, the company is known to have a high online interest. Specifically, Elon Musk has single handedly influenced people into buying shares including Etsy, Dogecoin, and Gamestop. The stock mainly gained popularity in 2020 and is currently at $705.
How to find Meme Stocks
One thing that meme stocks have in common is that they all have some sort of short squeeze. This means that a company’s shares experience unusually high trading volume in a short amount of time. If you can take advantage of this by maximising your investment before the stock falls, you can retain some healthy gains. Another way to spot out meme stocks is through social media. Following stock-specific accounts on Twitter, joining groups on Reddit, and even the news feature on Invstr can help you to stay up to date on buzzing companies!
Overall, meme stocks are definitely something for people who are willing to take a high risk. With a chance of high rewards and potential long-term investments, this can have great gains. However it’s always important to watch for the volatility and keep up with the company!
Read time: 3 minutes
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
