What Exactly is a Meme Stock?

June 16, 2021

The recent news regarding GameStop, AMC, Blackberry, etc., has many individuals wondering, “What is a Meme Stock?” This is a question that has led to various debates by investors of all experience levels. Today we cover the primary details regarding the recent Meme Stock frenzy and what you need to know about its origin.

What is a Meme?

To understand what a meme stock is, let’s start with the origin of the Internet Meme. Internet Memes have become quite popular over the past decade as social media has rapidly increased the connectivity of our world. Thoughts, ideas, and beliefs are shared in seconds with smartphones via social media platforms. Traditionally, Memes consist of videos or images that center around cultural trends. Typically, they are comedic, but some are political as users attempt to publish their views quickly.

Social media icons on smart phone

How Meme Stocks Came To Popularity

Recognizing the influence of the users on Reddit is critical in understanding the meaning of a Meme Stock. Reddit is a popular online forum and the site where Meme Stocks were born. A popular thread formed on Reddit comprised of investors looking to counter Wall Street and the associated hedge funds. This group of individuals looked to find the top shorted stocks to force ashort squeeze. The forum grew in popularity as many began participating in the conversation. As a result, a herd mentality formed.

Reddit’s Impact on Meme Stock Investing

Reddit users quickly became the driving force behind the Meme Stock mania. Firstly, Reddit investors did not follow any traditional investing philosophy. As a result, the unconventional philosophy resulted in the targeted stocks being called Meme Stocks. Moreover, the stocks were not purchased due to the company’s financial strength but mainly due to the cultural trend of countering short selling. Many of these companies have bleak financial outlooks. However, investors have been willing to disregard this information as the herd sticks together and the price keeps rising. Whether the stocks were bought as a joke or bought to take down Wall Street, this movement became the biggest meme of 2021.

beginning investor checking mobile for Meme Stock

Should You Buy Meme Stocks?

In closing, we hope you learned something about the meaning of a Meme Stock and its origin. Our advice to clients regarding Meme Stock investing is similar to other high-risk areas, such as Cryptocurrency. There is the potential for significant upside. However, you could lose some or all of your investment as well. Therefore, proceed with caution and only invest what you are willing to lose. 

Whenever you have any questions about taxes, your individual investment portfolio, our 401(k)-recommendation service, mitigating risk, or anything else, please contact us.  Feel free to forward this commentary to a friend, family member, or co-worker. If you have had any changes to your income, job, family, health insurance, risk tolerance, or overall financial situation, give the team at Summit Finacial a call to discuss it. Feel free to send your feedback or suggestions, as we would love to hear them.

Best Regards,
Zachary A. Bachner, CFP®

With contributions by Robert L. Wink, Kenneth R. Wink, and James D. Wink.

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