How Is a Meme Stock Defined?
A meme stock is a stock that has developed a cult-like following online and via social media channels. These online communities can then use storylines and dialogues extended in discussion threads on websites such as Reddit and postings to followers on platforms such as Twitter and Facebook to generate enthusiasm for a stock.
Thus, meme stock communities may have a significant impact on the pricing of such shares through concerted attempts to begin short squeezes in highly shorted names, for example. As a result, meme stocks might appear to be overpriced in relation to their fundamentals yet remain elevated for extended periods of time as meme stock community members prop up their values.
Additionally, meme stock forums have established a variety of informal language and market lingo, such as "diamond hands" (strong hands that will not sell even on declines), "tendies" (profits, humorously alluding to the number of chicken tenders one may purchase with them), and "to the moon" (anticipation of extremely above-average returns).
Recognize Meme Stocks
A meme is a concept or aspect of popular culture that spreads and multiplies across people's minds. As the internet and social media expanded in popularity, memes became more prevalent and relevant, allowing individuals to quickly disseminate hilarious, fascinating, or caustic videos, photographs, or articles to others around the world. Sharing such posts rapidly and multiplicatively has the potential to make them become viral.
With the advent of the internet, chat rooms and discussion forums devoted to investing and stock promotion also grew in popularity. In the late 1990s and early 2000s, these websites aided in the promotion and appreciation of so-called dotcom stocks—a bubble that notoriously burst spectacularly.
Meme stocks, on the other hand, did not actually arise until 2020, when they were discovered on the Reddit site r/wallstreetbets. Unlike its forerunners and other investment message boards, WallStreetBets quickly established a reputation for its unique and sometimes irreverent tone. In this and subsequent forums, members collaborate to select and promote target stocks, while also investing their own money. Unlike online pump-and-dump operations designed to mislead unsuspecting investors, meme stock promotion entails mostly purchasing and holding with the aforementioned strong hands even after price surges.
The First Meme Stock at GameStop
In August 2020, the YouTube user Roaring Kitty produced a future popular video outlining why shares of brick-and-mortar video game retailer GameStop Corp. (GME) might skyrocket from $5 to $50 per share. (Roaring Kitty's true name is Keith Gill, and he was also a Redditor with the handle u/deepF...Value and was an active member of the subreddit r/wallstreetbets.) He noted in the video that the stock has some of the greatest short interest in the market, mostly due to hedge funds' short holdings—and that these funds would need to cover their positions in the case of a huge short squeeze, which would drive the price substantially higher.
A few days later, former Chewy.com CEO and investor Ryan Cohen confirmed on Twitter that he had bought an undisclosed quantity of GME shares. Cohen acquired a 10% stake in the firm in November 2020. On Jan. 12, he was elected to the board, and the stock had risen to $20. By the time the market closed two days later, the value had doubled, representing an eightfold rise over the price at the time of Cohen's and Gill's earlier posts.
Then, in January 2021, the short squeeze predicted by The Roaring Kitty materialized, with GME shares bursting to over $500 amid a frenzy of short-covering and panic buying. The squeeze's primary victims were a number of hedge funds, many of which were forced to close owing to massive losses. As a result, the meme stock notion took on a David against. Goliath or Robin Hood connotation of robbing the wealthy Wall Street elite in order to reward the little retail investor.
Additional Meme Stocks
While GameStop was the first profitable meme stock, it was far from the only one. WallStreetBets users rapidly discovered more undervalued companies with high short interest that needed to be boosted. These included AMC Entertainment Holdings Inc. (AMC), the movie theater chain that saw profits decline as a result of the COVID-19 epidemic, and Blackberry Limited (BB), the aging smartphone manufacturer. Additionally, both stocks saw their shares rapidly grow in value by multiples. Indeed, once these equities were known as memes, members of r/wallstreetbets and similar sites began to notice the irony (for the "lulz") of witnessing such heritage enterprises rise from the ashes in the stock market.
Certain meme stocks fared worse than others, notwithstanding the odd short squeeze. Among other meme names include Bed Bath & Beyond Inc. (BBBY), Koss Corporation (KOSS), Vinco Ventures (BBIG), Support.com, and even the meme stock facilitator Robinhood Markets Inc. (HOOD).
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