How Do You Define a meme stock?
2020 has been a whirlwind year and so far, it doesn’t look like 2021 has any plans of letting up. With markets reaching an all-time high, investors are looking for new ways to get in on the action. Recently, a new term has come been making its rounds through the markets and headlines- “Meme stock”. With so many new stocks popping up in the news, how do you define a meme stock? To help you spot these types of stocks, let’s look at a few defining characteristics and what the future could look like for this investment strategy.
How do I know it’s a meme stock?
The term “meme stock” is fairly new so to give a definitive definition would be misleading. Instead, we’ll review some of the typical characteristics of a meme stock.
- The stock has made it rounds through various internet communities such as twitter, reddit/subreddits, and other social media.
- These stocks experience high volatility. Their growth is fast and strong but so are their declines. With meme stocks, significant growth can appear virtually overnight, taking a stock from a few dollars a share to the three digits.
- These companies are often in bad shape and trade at low stock prices.
- Their hype is based more on speculation and less around a solid financial future. Typically, when you invest in a company’s stock you take the time to research not just their financials but also their overall strategy and mission. Companies like Coca-Cola and P&G have done well in the market because they maintain solid financials and growth strategies. Meme stocks however, are based purely on internet speculation or the rumor mill, meaning that their growth is nothing more than a pooling of the masses.
Where can I learn more?
Online investing communities such as Twitter and Reddit are great places to look. For example, the subreddit that started the Gamespot trend r/WallStreeetBets now has 2MM followers and continues to grow. In order to find out the next meme stock you’ll have to spend some time sorting through the masses. It was r/WallStreetBets that exposed the short selling of GameStop by major hedge fund companies and rallied the retailer to its highest price ever. WallStreetBets is also behind the rally of other retailers such as AMC and Nokia.
Are these stocks a good bet?
Unfortunately, I can’t answer this. First of all, I’m not a certified financial planner so I’m not legally allowed to give this advice. Second, meme stocks have not been around that long so it’s hard to tell. Are meme stocks the next Bitcoin or just a trending fad of 2021? So far it seems that the winners in this game are few and far in between. It is incredibly difficult to time the market perfectly and hitch a ride to the top with one of these stocks. For example, GameStop has been at the center of the Meme Stock rally, shooting to $347.51 on January 27th, a 1556% increase from the month prior. However, as of yesterday, the stock closed at $52.40, taking a massive plunge after Robinhood and other platforms restricted trades. This sort of volatility is a key cornerstone of meme stocks; as quickly as they make a splash, they’re gone. What I do personally believe is that investing in meme stocks is like attending a party-best to leave before they turn the lights on. If you’re serious about getting into investing, I suggest you check out our investment guide for beginners.
Thanks for your blog, nice to read. Do not stop.
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