The recent news regarding GameStop, AMC, Blackberry, etc., has many individuals wondering, “What is a Meme Stock?” This question 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 Stock?
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.
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 Reddit thread comprised investors looking to counter Wall Street and the associated hedge funds. This group of individuals looked to find the top shorted stocks to force a short 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 economic 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.
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 cautiously and only invest what you are willing to lose.
Have More Questions?
Please 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, call the Summit Finacial team to discuss it. Feel free to share your feedback or suggestions; we would love to hear them.
Zachary A. Bachner, CFP®
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