As a result, hordes of investors started buying GameStop stock, making it very expensive for the hedge funds to buy back from their short positions. Part of the motivation behind the online support for certain meme stocks comes from hedge funds’ short positions in those companies. Within a couple weeks, social media users flocked to the Wall Street Bets forum to join the conversation and participate in the hype. Other stocks, like AMC Entertainment (AMC), Bed Bath & Beyond (BBBY), Blackberry (BB), and Nokia (NOK), became targets of rampant speculation—and their prices fluctuated accordingly.
These online communities can dedicate heavy research and resources toward a particular stock. Meme stocks often have heavier discourse and analysis in discussion threads on websites like Reddit and posts to followers on platforms like X (formerly Twitter) and Facebook. Meme stocks can often be identified by unusually high social media activity, abnormal trading volumes, sharp price volatility, and heavy interest from retail investors. Monitoring these indicators can help identify meme stocks, though investing in them remains risky. 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.
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The name “meme stock” piggybacks on this viral nature as many traders flocked to these stocks due to repeated pushing on Reddit, Facebook, Twitter, TikTok, Instagram and other social media outlets. News of these stocks spread like wildfire throughout the internet, causing lots of dollars to flow in from various sources. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin.
GameStop’s sales fell about 11 percent in its 2023 fiscal year compared to 2022 and fell nearly 20 percent during its fourth quarter. The company earned just $6.7 million in net income in 2023, which is far from justifying its market value of over $9 billion. When large numbers of people buy into a stock (which you can tell from the stocks trading volume), there are also a large number of people who could exit their positions in the short term. Just as much as there can be highs during times of high demand, so too can there be lows amid mass exoduses. Many meme stocks are popularized because they’re heavily shorted, which can play into the stocks performance as well. One peak does not necessarily mean there will be more, but it’s possible.
Short selling and meme stocks
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. 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. Below, CNBC Select explains these types of investments, plus where you’re likely better off putting your money instead. In 2022, Bed Bath & Beyond announced intentions to sell 12 million shares in a secondary offering as meme stock promoters pumped the value of its stock.
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The SEC will look at all trading activity and Reddit posts to see what was happening at the time of the tweet and who benefited from the tweet via transactions, Lynch said. While nothing may come of their investigation, it’s possible the company could look to remove him from the board, she added. The tweet from Moore came after the announcement where he said that the shift to Nasdaq was to “deliver tendies to retail investors” consequent to the Nasdaq-following ETFs buying the stock. In 2021 during Covid-19, the proliferation of zero-commission brokerage accounts and stay-at-home orders led to an individual-investor surge. how to use crypto But in 2021, small investors showed they could be a force to be reckoned with, coordinating trades on Internet platforms like Reddit, Twitter, YouTube, or Discord to fuel big price swings. These investors also helped drive moves in different types of cryptocurrencies as well as SPACs, or special purpose acquisition companies.
- But the goals of meme-stock participants are not solely to make a quick buck.
- 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.
- Just a day after the tweet from Musk, the stock rose to new heights once again.
- This news caught the attention of Reddit’s r/wallstreetbets forum, and AMC became one of the most frequently mentioned shares on the platform.
- Unlike its predecessors and other investing message boards, WallStreetBets became known for its unconventional and often irreverent tone.
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You can often choose to invest in index funds via your employer-sponsored 401(k), too. Memes like Megamind stay popular because people think they’re easy to understand and share. Plus, the internet loves taking something old and turning it into something new and funny. Despite being born in the US, I ended up spending most of my life in Europe, from Latvia, Austria, and Georgia to finally settling in Lithuania. At Bored Panda, you’ll find me covering topics ranging from the cat meme of the day to red flags in the workplace and really anything else.
While some Reddit traders were able to make a lot of money in a short amount of time by buying and then selling AMC and/or GameStop at the exact right moment, investing in meme stocks is generally very risky. Meme stocks rose to prominence in early 2021 when online communities of retail investors, especially on platforms like Reddit, drove up the prices of heavily shorted stocks like GameStop and AMC. Meme stocks gained attention as a symbol of retail investors’ collective power, leading to discussions about market dynamics, transparency, and the ethical implications of social media’s influence on stock prices.
Shares are worth what people valutrades forex broker valutrades review valutrades information are willing to pay for them (aka market value). This platform fuels the masses to follow trends in rallying behind a stock sometimes to no apparent end. 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. Our partners cannot pay us to guarantee favorable reviews of their products or services. This Canadian company is known for pioneering the smartphone, but it quickly went by the wayside when Apple revolutionized the space.
There are also YouTube content creators, Facebook communities, Twitter hashtags, and even Discord chats how to open xms fx trading accounts and get $30 bonus propelling these meme stocks into fame. Let’s cover how meme stocks work, what to look for in the next meme stock, and how companies like AMC and GameStop got to where they are today. Risking money in speculative investments can be exhilarating, but it is rarely the path to long-term wealth.
