WHAT IS A MEME STOCK?
A Meme Stock becomes renowned or notorious based on its product, merit, or graphs. A significant indicator of a meme stock is if it has become a joke or is brought up frequently. They are called "Meme" because these stocks are pumped up in blogs or social media channels, where people use jokes, memes, and all sorts of content to 'support the cause' (The cause = raising the stock's price). This type of financial behaviour arrived first with Cryptocurrency trading, where Crypto chats displayed memes of rockets "Going to the Moon" or "Lambo", representing the desire to profit.
Meme Stocks are typically chosen by younger adults invest due to their high volatility. Although their fundamentals aren't the best, people pour money into Meme Stocks because they've read it on a blog (i.e. Reddit), because they saw it on the Tele, or based on irrational financial behaviour. That's not to say that meme stocks are the worst investments out there. Some of them have good fundamentals, yet they tend to be overvalued due to people's tendency to FOMO (Fear of Missing Out) when the stock rises, and panic sells when it drops.
How was the term 'Meme Stock' minted?
Mainly attributed to a coordinated effort by the Reddit community (A Forum website) and the wallstreetbets subforum, GameStop's share price resulted in a 1,500 per cent increase in January 2021 (From close to USD 17 to 325).
Many, many average Joe's were discussing that several hedge funds were shorting the stock (A trade in which they've bet against the company's performance, it would be the opposite of buying the stock). The Reddit community took action to "preserve" the company's share price and started buying the stock massively, making the price skyrocket and moving against the hedge funds. This movement is called a "short squeeze". Elon Musk tweet "Gamestonk!" triggered a subsequent jump in after-hours trading. Then prices went down awfully, but on the 24th of Feb, they increased 100% again. So, the rollercoaster seems far from the end.
Jokes and memes flowed during the whole process.
Are there any other Meme Stocks?
Oh yes, there are many. Below is a list of the top 10 most mentioned US stocks on the WallStreetBets thread on Reddit over the 24 hours to 09:00 UTC (5:00 EST) on March 26, 2021, according to data from Quiver Quantitative.