By Subhasree Nag
If you like the idea of speculating and gambling when it comes to investments, meme stock is the best option for you. Contrarily, if you like a stable income from investments, and long-term growth, the probable meme stocks are not for you. Although it sounds silly, the wins and losses around it are no joke.
In this article, you will learn what is a meme stock and how it works. Once you get a general understanding of them, you will learn their essential characteristics. Moreover, you will also learn about the potential risks and rewards of investing in meme stocks. Hence, to learn more about the tips and tricks for buying stock, read on to the end of the article.
What Is a Meme Stock?
Some companies gain viral popularity on social media due to a rise in sentiment among their followers. Hence, these companies end up generating shares. These shares are called meme stock.
Generally, these online communities perform a lot of research and dedicate many resources towards certain stocks. These stocks end up being meme stocks. Actually, many people perform heavy discourses and discussions about these stocks on platforms like Reddit and Quora. Moreover, they post to followers on social media platforms like Facebook and X.
On the other hand, many experts believe that stocks meme communities put collective efforts to influence share prices. However, in general, meme stock shareholders are mostly independent individuals who do not belong to any organized group. Here, each shareholder has independent views and preferences.
However, the independent actions of those shareholders, if taken collectively, can be effective. Hence, in many cases, the value of meme stocks increases in terms of fundamental technical analysis.
Some examples of meme stocks include Bath & Beyond (BBBY), GameStop (GME), and AMC Entertainment (AMC).
Generally, the shares of these companies rapidly jump in price. This happens due to the attention of a strong online following.
How Does a Meme Stock Work?
According to an expert from Forbes, “Meme stocks appeal to our fear of missing out (FOMO) and our desire to get rich quickly. For many investors, it may also appeal to our desire to belong to the tribe–as forums across the internet and social media will create the perception that everyone is participating.”
Honestly, if meme stocks did not have a cult following, they would not be valuable assets. Basically, certain online communities on Reddit collectively coordinate the buying and selling of these stocks. Hence, they can influence stock prices.
Moreover, as online support for an invest meme increases, these communities can elevate stock prices accordingly. This happens even if the company’s worth is not that high. Additionally, some online support comes from hedge funds’s short positions with such companies. Hence, the latter acts as an additional motivation.
A meme is a popular culture on social media that spreads and multiplies across the minds of people. In recent times, memes have become prevalent and relevant with the rise of social media and the Internet. Hence, when a fun, humorous, and sarcastic video or image goes viral, it produces a multiplicative effect.
Meanwhile, meme stocks became popular in the year 2020 through popular Reddit forums.
Social sentiment is the most important aspect that makes a meme stock popular. With the help of social sentiment indicators, investors can find out the performance of a company. In this case, they acquire data from social media and businesses to make insights. It is important that you do your research on how to invest online before diving in.
Essential Characteristics of a Meme Stock
Basically, a meme stock is a type of stock that depends on its popularity on social media platforms. Some major platforms include YouTube, Reddit, Quora, and X. Moreover, public reviews of these stocks spread through the Internet fast. Furthermore, most of these viral posts come from individual investors of these stocks.
A meme stock is very different from a traditional stock. For instance, in the case of a traditional stock, you will do a lot of research before you invest in it. Also, you will check the company’s filings with the US Securities and Exchange Commission (SEC).
On the other hand, you do not perform too much research for a meme stock. Generally, you either see a post or hear it from a friend. In most cases, these people are not full-time investors, or they do not maintain an investment portfolio.
The following are some of the major characteristics of a meme stock that you must know:
- Social media influence is one of the major factors in the popularity of a meme stock.
- The stock prices of meme stocks are highly volatile in nature. That is, they fluctuate a lot within a short span of time.
- The trading volume of meme stocks fluctuates quickly. Hence, it is not a stable form of investment when you think long-term.
- Generally, these stocks come with substantial interest from independent investors.
- The prices of a meme stock do not depend on the fundamentals of the company in question.
Risks of investing in Meme Stocks
The following are the major risks of investing in meme stocks:
- Viral popularity and speculative nature
- Social media and retail investors drive the popularity of meme stocks.
- Meme stocks also depend on company performance
- Since they are highly volatile, they experience extreme price fluctuations
- There is no strong backing of financial performance
- You will find it difficult to buy and sell meme stocks in large quantities.
- There is also a high regulatory intervention in meme stocks.
Major Terms Related to Meme Stocks
If you want to invest in meme stocks, you must be active on major social media platforms like Facebook, Reddit, X (formerly Twitter), and others. Apart from that, you must be able to identify the status of stock market memes through specific lingo. Generally, you will find them online, along with updates about stock.
Here are the major terms you must know about if you want to become a meme stock investor:
1. Apes
This term represents the members of the meme stock community.
2. BTFD
This shows buying a stock even after declining prices.
3. Diamond Hands
It is used for people who hold on to their stocks despite making heavy losses. Generally, these people believe that the stock price will eventually increase.
4. FOMO
It stands for “Fear of missing out.” Basically, if you do not catch a particular meme stock, you will regret it.
5. Stonks
This is a misspelling of the word stocks.
6. Paper Hands
This term is used against investors who fail to maintain diamond hands. Mainly, this term is for people who sell their shares quite fast.
7. Tendies
Tendies show the number of profits you make in meme stocks. In fact, “tendies” is a short-term for chicken tenders.
8. To The Mon
It shows the idea that a stock will rise extraordinarily high.
9. YOLO
It stands for “You only live once.” This shows the urgency of buying meme stock.
Are You Buying Meme Stock?
You now know what a meme stock is and how it works. Basically, its value depends on its popularity on social media. Hence, if you want to buy a meme stock, do not think of it as a long-term investment.
Do you have more suggestions on meme stocks? Please share your ideas and opinions in the comments section below.
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