Diversification across multiple investments helps buoy your portfolio in case one investment sinks. So if you sell the stock you borrowed for $10, and then its price rises to $50, you’re responsible for those shares, meaning you’re on the hook for that $40 you owe the broker. One visible outcome of the meme stock saga has been an increase in interest in retail investing. Despite the actions of Robinhood and other brokerage firms, new downloads of those apps skyrocketed after the events surrounding the GameStop stock. The Robinhood app alone was downloaded more than 1 million times in the last week of January, when the stock surged and then later declined, according to a number media outlets, including Barron’s. Except in the case of GME, the hedge fund’s plans went wrong as so many retail investors started buying.
Short selling is when an investor—often an institutional investor like a hedge fund—borrows a stock and sells the shares with a plan to buy it back later to return. When someone shorts a stock, they’re betting the stock price will go down between the time they sell and repurchase the stock. Short selling is when somebody sells shares that they do not own, hoping to buy them back at a lower price.
MEME features an equal-weighted portfolio of 25 stocks based on social media popularity and market sentiment. The top 25 such firms are included in the portfolio, which is re-examined and rebalanced twice a month. The YouTube persona Roaring Kitty posted a future viral video laying out the case for why shares of brick-and-mortar video game retailer GameStop Corp. (GME) could soar from $5 to $50 per share in August 2020.
Understanding Meme Stocks
Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. Meme stocks, however, didn’t truly emerge until the year 2020 via the Reddit forum r/wallstreetbets. Unlike its predecessors and other investing message boards, WallStreetBets became known for its unconventional and often irreverent tone. 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.
When a rising stock price starts to pressure Short Sellers into closing their Short positions, this creates what’s known as a short squeeze. By closing their Short Sell position, Short Sellers add to the buying volume of the stock, causing the stock price to rise further and pressure other Short Sellers to close their Short positions. The cycle (the Short Squeeze) may continue for an extended period of time, or be limited to a few days.
These days, Blackberry is a software firm providing endpoint security software and other Internet of Things management products for customers such as the auto industry. We believe everyone should be able to make financial decisions with confidence. Plus, the entire event has caused suspicion of Wall Street strategies, as well as the ethics of the relationship between traditional financial markets and current investors. Reddit is a community platform where people around the world can write whatever they please. While there are rules to prevent things like inciting violence or illegal trades, these are not enforced across the board. GameStop followed suit in 2021, raising nearly $1.7 billion via a secondary offering of 8.5 million additional shares at an average price of more than $200 per share.
This influences which products we write about and where and how the product appears on a page. Roaring Kitty’s real name is Keith Gill who was also on Reddit as u/deepF…Value and active on the subreddit r/wallstreetbets.
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These short-term surges can often reverse course just as quickly, though, making meme stocks far more volatile than average stock market moves. Collectively, their independent actions have been shown to initiate short squeezes in heavily shorted names. As a result, meme stocks can become overvalued relative to fundamental technical analysis. Meme stocks refer to a select few stocks that gain sudden popularity on the internet and lead to sky-high prices and unusually high trading volume.
- If it does, you can repurchase the shares at the lower price, return them to the brokerage and keep the difference as profit.
- This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research.
- While some thought that the meme stock craze would be short-lived, the phenomenon remains in force months later.
- 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.
- 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.
Risking money in speculative investments can be exhilarating, but it is rarely the path to long-term wealth. Investing in low-cost index funds and through tax-advantaged retirement accounts such as IRAs has a higher likelihood of success than relying on risky investing strategies. Investing in a single stock usually carries more risk than investing the same amount of money in several different stocks.
GameStop may have started the meme stock mania, but others have followed in its footsteps. Below are the five best-performing stocks in the Solactive Roundhill Meme Stock Index, ordered by one-year returns. The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Both companies also allow investor to buy fractional shares of stocks, so you can buy a piece of the action without getting in too deep. Experts generally suggest keeping individual stock picking limited to 5% to 10% of your overall investment portfolio.
Popular Investment Meme Terms
Retail investors responded to calls to action on social media by buying large numbers of shares in those companies which caused a short squeeze on those shorting the stocks, causing losses for some major investors and funds. People learned major investing lessons during the craze, whether investors made money from meme stocks or not. According to the Schwab Q1 Trader Sentiment Survey, 35% of Charles Schwab and TD Ameritrade traders are more aware of their risk tolerance and factor it in before making momentum-based trades after the meme stock frenzy.
The House Financial Services Committee and the Justice Department both took a deeper look at events that led to this surge. Major brokerages, such as Robinhood, that average investors used to engage https://www.topforexnews.org/ in this trading frenzy, chose to restrict trading in GME and some other meme stocks. Robinhood’s CEO said the restrictions were to help the brokerage meet increased regulatory deposit mandates.
Funds that track the S&P 500 are generally an effective way to earn a good return on your money over time. Though the idea of amassing crazy wealth overnight is obviously appealing, the reality is that the odds are heavily stacked against anyone trying to outsmart the market. The meme investors who walked away with a lot of money were arguably just very lucky. However, critics argue https://www.currency-trading.org/ that their price performance and appeal have little to do with their fundamentals and much to do with their entertainment value as speculative playthings, much like casino games. Then, in January 2021, the short squeeze that The Roaring Kitty had suggested took place in earnest, with the price of GME shares exploding to nearly $500 amid a frenzy of short-covering and panic buying.
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Prior to January 2021, the term “stonk” had mostly appeared on Twitter, Reddit, and other social media platforms but the GameStop short squeeze brought it into wider usage, and it started appearing in the financial press. The meme stock movement unofficially started in the summer of 2020, when most people were stuck at home during the first few months of the pandemic. Looking to turn some of that extra free https://www.forexbox.info/ time into money, many people turned to the stock market and social media for ideas. 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, 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.
Bear in mind that meme stocks can be especially volatile, so plan accordingly and be prepared to continue investing more over time. Indeed, as these became recognized meme stocks, members of r/wallstreetbets and similar outlets began to acknowledge the humor (for the “lulz”) of seeing such legacy companies emerge from the ashes in the stock market. “Stonk” is a deliberate misspelling of the word “stock” that first appeared in 2017 and is often used to imply that someone has only a vague understanding of financial transactions or makes poor financial decisions.
A broker like Vanguard is a good choice for passive investors who want to hold funds long-term as it doesn’t offer many tools for those who are more active traders or interested in short-term trading. Expense ratios (basically the management costs) for its ETFs and mutual funds are some of the lowest around, with an average of 0.10%, meaning every $10,000 invested costs $10 annually. While some thought that the meme stock craze would be short-lived, the phenomenon remains in force months later. Meme stock communities pumped the brick-and-mortar retailer Bed Bath & Beyond (BBBY) to extreme levels in the summer of 2022 when it was up 314% for a short period before crashing back down. WallStreetBets users quickly identified other downtrodden stocks with heavy short interest to boost. These included AMC Entertainment Holdings Inc. (AMC), the movie theater chain that saw flagging profits amid the COVID-19 pandemic, and Blackberry Limited (BB), the outmoded smartphone maker.