All About Meme Stocks
The term “meme stocks” refers to shares in firms that have developed a following online through social media and discussion forums. Memes and stories are used in these communities to express their thoughts on specific equities, contributing to their increasing popularity, interest, and demand.
Social media has become an integral part of our lives as we enjoy instantaneous conversations with friends and family across the globe. Social media is also beneficial for sharing one’s interests with other community members interested in having discussions related to those topics.
This trend can be seen within many popular social networking websites such as Twitter, Reddit, Facebook, Instagram, etc. Memes and other forms of viral media are viral on social media outlets, where they are widely dispersed with minimal effort.
So What Are Meme Stocks?
Meme stocks are shares in public companies that have become the subject of discussion on social media and message boards such as Reddit. Many of these companies will participate in social media to increase their engagement with prospective investors, leading to more interest within online communities.
Many online forum users believe they can profit by posting memes about a particular company, which draws increased attention from other forum users who may feel inclined to invest based on the hype created by the trending meme. Have you seen any memes about Saxo?
This is often coupled with increased trading volume and share price for reasons beyond those related directly to company performance or market forces. In most cases, though, this type of behaviour does not drive long-term gains as most only last between three to five days before dropping back down below their original levels.
The First Meme Stock
The first example of a meme stock was GameStop Corp. (GME). In August 2020, an activist investor posted to the subreddit explaining why shares could be a good bet. This was picked up by another user known as The Roaring Kitty (Keith Gill), who posted a video that became viral laying out the case for how GME stock could soar from $5 to $50 per share.
The video explained that the stock had the highest short interest in the market, mainly with short positions held by hedge funds looking to capitalize on its downward momentum after the announced poor earnings. He also noted that GameStop’s gaming competition had not materialized nearly as fast as many expected, allowing GME to continue dominating with minimal impact from new competitors.
The video went viral and was widely distributed amongst message boards and social media, resulting in increased interest and attention for GME. Within its first 24 hours, the short positions in GME were completely closed, and its stock price skyrocketed more than 40%. Over the next two months, this trend continued as GameStop’s share prices reached $30, attracting even more attention from prospective investors.
Many online forums users believed they could make a significant amount of money by posting memes about this company which drove up the trading volume and share price. The success of this meme stock illustrated the impact that viral media could have on a company’s share price in a short time. The Roaring Kitty was able to turn $5000 into over $20,000 in under six months by capitalizing on GameStop’s high short interest and paying attention when the post about GME was posted.
Something to keep in mind
Long term holding of meme stocks is not likely to result in significant gains, as they tend to be more speculative and prone to swings based on market sentiment. It’s also important to remember that the overall performance of a company does not correlate with how successful it will be as a meme stock; GameStop managed to successfully transition from a traditional video game retailer into a full-service gaming platform and would go on to see massive success over the next decade, but was still one of the first and most successful examples of a meme stock.
This type of trading can prove very lucrative for those who identify potential trends early enough and capitalize before it experiences any major downside movement. As long as culture continues dominating global conversations over social media and online forums, meme stocks will continue popping up all across the market, looking for their next big hit.
