Meme stock tracking can be a wild ride, but don't worry, I've got you covered. Meme stocks are often characterized by their high volatility and sudden price swings, with some stocks experiencing gains of over 1,000% in a matter of days.
It's essential to understand that meme stocks are often driven by social media hype, with investors buying into the trend and fueling the price increase. This can be a double-edged sword, as it can also lead to a rapid decline in price if the hype dies down.
To get started with meme stock tracking, you'll want to focus on stocks that are gaining traction on social media platforms like Reddit and Twitter. The most popular meme stocks often have a strong online presence, with thousands of users discussing and promoting the stock.
What Is a Stock?
A stock is a type of investment that represents ownership in a company.
Stocks can be volatile, with prices fluctuating rapidly due to online hype and viral trends.
Meme stocks, in particular, are driven by investor enthusiasm rather than a company's fundamentals.
These stocks often experience sudden and significant price increases due to online social media hype.
Online communities like Reddit and social media platforms like X (formerly Twitter) can dedicate heavy research and resources to a particular stock.
Meme stock shareholders are often independent individuals with their own investment views and preferences.
Collectively, their actions can initiate short squeezes in heavily shorted names, causing prices to rise.
The term "meme stock" comes from the idea that these stocks are propelled by memes and jokes rather than traditional fundamental analysis or market factors.
GameStop's 2021 surge is a prime example of a meme stock phenomenon.
Understanding Meme Stocks
Meme stocks originated in 2020 on the Reddit forum r/wallstreetbets, which is known for its unconventional and irreverent tone. This platform allowed users to work together to identify target stocks and promote them.
The promotion of meme stocks involves buying and holding with the strong hands even after the price spikes, unlike online pump-and-dump schemes that aim to defraud investors. This approach has led to significant market movements, showcasing the power of social media to mobilize individual investors.
The role of Reddit in the meme stock phenomenon is pivotal, serving as the primary platform where retail investors gather, share information, and rally support for certain stocks.
GameStop and Meme Stocks
GameStop shares soared from $5 to $50 per share in just a few days, fueled by a short squeeze that caught hedge funds off guard.
In August 2020, YouTube persona Roaring Kitty, aka Keith Gill, posted a video predicting a massive short squeeze that would drive the stock much higher.
The short squeeze took place in January 2021, with the price of GME shares exploding to nearly $500 amid a frenzy of short-covering and panic buying.
Roaring Kitty's real name is Keith Gill, who was also active on Reddit as u/deepF...Value and on the subreddit r/wallstreetbets.
GameStop shares drifted steadily lower after the initial meme stock craze, settling at just over $10 a share by the Spring of 2024.
However, in mid-May of that year, the stock experienced a sudden resurgence, fueled by Keith Gill's return to social media.
Gill's posts, including a cryptic image viewed over 24 million times, reignited frenzied interest in meme stocks, causing a massive surge in trading volume and price.
GameStop shares skyrocketed nearly 100% on Tuesday, May 14, 2024, following a 74% increase the previous day.
The renewed meme stock rally also extended to other companies, such as AMC Entertainment, which saw its stock price jump 120% in early trading on Tuesday.
Meme stock activity was given a great boost from bored individuals 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.
A short squeeze occurs when many shorts are forced to cover at once, adding upward pressure on the stock's price as they are all forced to buy the stock and cover at ever higher prices.
The short squeeze accelerated a stock's price increases as more and more short sellers were forced to bail out to cut their losses.
In the case of GameStop, the short squeeze was so severe that it forced a handful of hedge funds to shut down due to heavy losses.
Meme Stock Market Dynamics
A short squeeze can occur when many investors are betting against a stock, and the price suddenly rises, forcing them to buy back the shares at a higher price to cut their losses.
The short squeeze can add significant upward pressure on the stock's price as more and more short sellers are forced to bail out.
In May 2024, GameStop shares skyrocketed nearly 100% after Keith Gill, aka "Roaring Kitty", returned to social media, reigniting interest in meme stocks.
This rapid price appreciation caught short sellers off guard, resulting in significant losses estimated at over $1.3 billion in just two days.
The renewed meme stock rally also extended to other companies, such as AMC Entertainment, which saw its stock price jump 120% in early trading.
The power of social media to drive investor behavior was evident in the sudden resurgence of meme stocks in May 2024, which was fueled by a cryptic image from Gill's X account viewed over 24 million times.
Zero-commission brokerage apps like Robinhood have also played a significant role in the meme stock phenomenon, allowing individuals to trade with ease and contributing to overwhelming trading volume in meme stocks.
The Robinhood app saw multiple trade delays, outages, and platform crashes, leading to user outrage and regulatory fines of approximately $70 million.
Investing in Meme Stocks
Investing in meme stocks can be a thrilling experience, but it's essential to understand the facts before diving in. Meme stocks are actual stocks listed on exchanges and available for trade, but their price performance is often driven by social media hype rather than fundamentals.
Investors are drawn to meme stocks due to their potential for high returns, and the sense of community and camaraderie that comes with being part of a online movement. A dedicated online community of investors promotes and discusses the stock, creating a sense of shared excitement.
To choose a meme stock, it's crucial to do your own research and consider your investment goals and market risk. This involves looking beyond the hype and examining the fundamentals of the company, as well as its social media activity and market sentiment.
Some potential advantages of investing in meme stocks include:
- Potential for high returns: Meme stocks have the potential to experience rapid and significant price increases, which can lead to substantial profits for investors who get in early and exit at the right time.
- Community support: Meme stocks often have a dedicated online community of investors who promote and discuss the stock, creating a sense of camaraderie and shared excitement.
- Disruptive power: Meme stocks can disrupt traditional market dynamics and challenge established institutions and hedge funds, giving individual investors a sense of empowerment.
How to Choose
Investing in meme stocks can be a thrilling experience, but it's essential to approach it with caution and a clear understanding of the risks involved.
The first step in choosing a meme stock is to consider your investment goals and market risk tolerance. This will help you determine which stocks are suitable for your portfolio.
Research is key when it comes to meme stocks. Take your time to learn about the company, its financials, and its market performance. Don't rely solely on social media trends or online communities.
The potential for high returns is one of the advantages of investing in meme stocks. However, this also means that prices can surge or plummet rapidly, making it essential to be prepared for market volatility.
A dedicated online community can be a significant factor in the success of a meme stock. Look for stocks with an active and engaged community that can provide valuable insights and support.
Before investing in a meme stock, make sure you understand the potential risks and rewards. It's also crucial to be aware of the impact of social media on market dynamics and investor behavior.
Here are some key factors to consider when choosing a meme stock:
- Financial stability: Look for companies with solid financials and a proven track record of performance.
- Market trend: Consider the current market trend and how it may impact the stock's price.
- Community support: Research the online community surrounding the stock and assess its level of engagement and support.
Stock ETF Availability
Roundhill Investments launched a meme stock-focused ETF in December 2021 under the ticker symbol 'MEME'. This ETF features an equal-weighted portfolio of 25 stocks based on social media popularity and market sentiment.
The MEME ETF is rebalanced twice a month to ensure the portfolio remains representative of the current market sentiment. Eligible securities are initially given a social media activity or “meme” score, with consideration paid to their short interest.
Single stock ETFs have also been introduced, which provide leveraged long or short positions on a single stock. These ETFs include some meme stocks like Tesla and NVIDIA, although only a small number have been approved for trading so far.
Featured Images: pexels.com
