What Are Meme Stocks, and Are They Real Investments?
Meme stocks are so-named because ideas about them spread rapidly on social media and web forums. Meme stocks also see communities built around them that promote the hype and elaborate on the original meme, inventing specific terms and symbols to accompany the stock. From there, the number of retail investors buying shares and call options snowballed, driving up the price. The price increase drove out some short sellers early on as it attracted various big-name investors and public figures, such as Elon Musk and venture capitalist Chamath Palihapitiya. GameStop, among the first meme stocks, is a prime example of how the retail investor community identified a highly shorted stock and used a short squeeze to work in their favor. Ultimately, a short seller may run out of available funds to hold on to the short and will be forced to buy back the shares at a higher price and close out the position.
Some meme stocks did not fare as well as others, even with the occasional short squeeze. Other meme names have included, among others, Bed Bath & Beyond Inc. (BBBY), Koss Corp. (KOSS), Vinco Ventures (BBIG), Support.com, and even the meme stock enabler Robinhood Markets Inc. (HOOD). The main victims of the squeeze ended up being a handful of hedge funds, some of which were forced to shut down due to heavy losses. As a result, the meme stock concept adopted a David vs. Goliath or Robin Hood connotation of taking from the rich Wall Street elite and rewarding the small retail investor. Shares surged from $3 in 2020 to past $300 at the end of January 2021, causing historic market volatility and substantial losses for short-selling hedge funds.
- In this and other forums that have popped up since, users work together to identify target stocks and then promote them, while also putting their own money to work.
- That’s when internet users identified several inexpensive stocks to purchase many of which were held by short sellers who were betting on equity price declines.
- This material is not intended as a recommendation, offer, or solicitation to purchase or sell securities, open a brokerage account, or engage in any investment strategy.
The excitement to make a large amount of money in a short period of time can be enormously tempting – therefore, investors may sometimes resort to meme stocks, succumbing to that temptation. If you’re not interested in building and managing your own portfolio of meme stocks but still want some exposure to the movement, there are some ETF solutions to help. One example is the VanEck Social Sentiment ETF (BUZZ 0.3%), an actively managed portfolio of 75 stocks that rank high in social media conversations. This ETF has an annual expense ratio of 0.75% (meaning it costs $75 per year for every $1,000 invested).
Top meme stocks right now
The Securities and Exchanges Commission (SEC), the US federal regulatory agency, has looked into meme stocks and Congress held a hearing on it, but so far no action has come of it. There is no guarantee that any of these stocks, or other meme stocks to come, will generate returns. Other companies that bdswiss review have become meme stocks to varying degrees include Plug Power (PLUG), Virgin Galactic (SPCE), Palantir (PLTR), and BlackBerry (BB). These ETFs hold familiar meme stocks such as Gamestop and AMC, and they also hold a few stocks some wouldn’t think to call meme stocks, such as Tesla and Peloton.
Retail investors who have engaged in the meme stock frenzy are known for targeting struggling businesses, and there is good reason for that, explained Edward Moya, a senior market analyst at OANDA. Take every bit of due diligence with a grain of salt and form your own opinions about meme stocks. Except in the case of GME, the hedge fund’s plans went wrong as so many retail investors started buying. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
Popular Questions
Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations. While it can be tempting to get in on a meme stock craze, your money is safer invested in other ways like through index funds. For an option with no expense ratio whatsoever, consider what Fidelity offers. The brokerage has funds that track large-cap stocks, which the website says, “are considered to be stocks of the largest 500 U.S. companies.” Below, CNBC Select explains these types of investments, plus where you’re likely better off putting your money instead.
Where to put your money instead of meme stocks
Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
With the internet, chat rooms and discussion boards devoted to investing and promoting stocks also arose. In the late 1990s and early 2000s, these sites helped promote and drive up the prices of so-called dotcom stocks—a bubble that famously burst with far-reaching economic consequences. Analysts say that Wall Street is making a profit even if the initial meme stock frenzy took a bit of getting used to. All investments carry a certain level of risk, some more than others. Meme stocks are a hard game to play because the peaks and dips can be arbitrary, but they do hold the potential for much larger capital gains.
How do meme stock traders pick the companies they target?
The top 25 such firms are included in the portfolio, which is re-examined and rebalanced twice a month. All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. You should coinmama review consult your legal, tax, or financial advisors before making any financial decisions. This material is not intended as a recommendation, offer, or solicitation to purchase or sell securities, open a brokerage account, or engage in any investment strategy.
While it is possible to make money with meme stocks, it is an extremely risky venture. Meme stock investing relies on trying to time the market, which humans, power trend even those professionally trained, are notoriously bad at. It also depends on knowing which stocks will pop and which won’t — which is essentially impossible.
But since becoming a public company, the fintech stock favorite has gotten aggressive, expanding its reach and has added a few million new customers in recent years. As with other fast-moving businesses, SoFi’s biggest hurdle now is how quickly it can focus on breakeven. While an ETF such as MEME may be less risky than holding one singular stock, it’s still made up of high-risk investments that could just as easily plummet as skyrocket.