Experts generally suggest keeping individual stock picking limited to 5% to 10% of your overall investment portfolio. Roundhill Investments came out with a meme stock-focused ETF in December of 2021 under the ticker symbol ‘MEME’. It featured an equal-weighted portfolio of 25 stocks based on social media popularity and market sentiment. Some meme stocks didn’t fare as well as others, however, even with the occasional short squeeze. Other meme names have included Bed Bath & Beyond Inc. (BBBY), Koss Corp. (KOSS), Vinco Ventures (BBIG), Support.com, and even the meme stock enabler Robinhood Markets Inc. (HOOD).
Should Beginners Invest in Meme Stocks?
In late 2021, Roundhill Investments launched the Roundhill Meme Stock ETF. With the ticker symbol MEME, the exchange-traded fund tracked the performance of stocks with elevated social media activity and high interest from short sellers. In late January 2021, regulators began monitoring trading activity for meme stocks. Concerned about potential market manipulation and overall stability in the financial markets, the U.S. Securities and Exchange Commission (SEC) and other financial watchdogs started closely observing how meme stocks were being traded. It sparked interest among young investors, pushing them to learn about trading psychology factors, risk, and strategy, skills that can serve beyond the next viral trade.
This creates a volatile market where a small event can trigger a massive price surge. Retail traders buying in large numbers can force short sellers to buy back shares, causing the price to skyrocket. This was a major reason behind GameStop’s historic price surge in 2021.
The type of stock that became a meme stock is also worth thinking about. Meme stocks are largely companies with brands that are recognizable to some degree to individual investors, compared with other stocks that may not have as much resonance with regular investors. At the same time, this contributed to short squeezes (where short sellers cover their short positions by buying the stock back, effectively driving the price even higher), helping these previously beaten down stocks soar. Meme stocks are prone to manipulation, where early investors pump up the price through hype and sell at the peak, causing How To Invest In Cryptocurrency a sudden crash that harms retail traders who bought in late.
- GameStop was the first successful meme stock but it wasn’t the only one.
- Here are five to do some more digging on (beyond arguably the two most famous meme stocks — video game retailer GameStop (GME +0.14%) and the world’s largest movie theater chain AMC (AMC +0.20%).
- These short-term surges can often reverse course just as quickly, though, making meme stocks far more volatile than average stock market moves.
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- Past performance is not a guarantee of future return, nor is it indicative of future performance.
- Since 2006, she has specialized in technical, fundamental, and economic analysis of financial markets.
This means you might not time the market correctly, and your timing might be off. These stocks are not necessarily small-cap or penny stocks, but rather established companies that have been taken over by online communities and social media platforms. Take, for example, GameStop, a brick-and-mortar video game retailer that was once on the verge of bankruptcy but was saved by a group of Reddit users who banded together to drive up its stock price.
Hedge funds short-selling meme stocks can lead to a short squeeze, which is a situation where retail traders buying in large numbers forces short sellers to buy back shares. Meme stocks refer to a select few stocks that gain sudden popularity on the internet and lead to sky-high prices and unusually high trading volume. While some Reddit traders were able to make a lot of money in a short amount of time by buying and then selling AMC and/or GameStop at the exact right moment, investing in meme stocks is generally very risky.
- Meme stocks can skyrocket for weeks, only to crash once the online buzz fades, a clear example of emotion overpowering evaluation.
- The International Review of Economics & Finance wrote that meme stocks became popular through the social media platform Reddit.com, specifically, subreddit.com, also known as WallStreetBets.
- While risky, meme stocks can offer unique advantages for certain investors, especially those who understand how momentum trading works and can act quickly.
- This crowd-driven market behavior has become a structural factor that analysts now track seriously.
Meme stocks resurface in 2025
Online communities can coordinate thousands of small trades that collectively move the price. Each viral post fuels buying pressure, creating a feedback loop between crowd-driven market behavior and price action. In some ways, getting wind of a meme stock is akin to hearing about it from a friend or relative, who may or may not have investing experience. “Meme stocks appeal to our fear of missing out (FOMO) and our desire to get rich quickly.
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Meme stocks often trade far above fair value.When sentiment shifts, they return to fundamental levels abruptly, catching late buyers off guard. This dynamic mirrors how a stock market bubble forms, when prices drift too far from reality before correcting sharply. A well-timed entry during a viral phase can yield outsized returns within hours. This speculative stock movement appeals to risk-tolerant traders who thrive on volatility. These trading psychology factors such as excitement, belonging, and rebellion, help explain why meme stocks thrive despite obvious risks. If you enjoy the thrill of playing in the big league of the stock exchanges with a group of like-minded individuals with money to spare, this can be worth the ride.
For instance, in January 2021, GameStop’s stock price surged by over 1,700% in just a few weeks, only to plummet by over 70% in the following months. Meme stocks can soar on speculation, social media buzz, or a sudden short squeeze—but those same forces can just as easily send prices crashing back to earth. Once online attention fades, trading volume drops, and prices often return to levels aligned with company fundamentals.
Risks of investing in meme stocks
Retail traders, who are new to the market, may buy into the hype and buy the stock at its peak price. Meme stocks gain traction on platforms like Reddit, X (Twitter), Discord, and where retail investors discuss and promote specific stocks. Some traders use pump-and-dump strategies, where they buy early, drive up interest, and sell at the peak, leaving latecomers with losses. Meme stocks are often driven by emotions, particularly the fear of missing out (FOMO).
This article explores the meaning of a meme stock, what causes it and what are its likely consequences for the investor. For those still itching to trade the next viral stock, invest only with money you can afford to lose. Once your account is open and funded, you can also choose from a number of different index funds, like an S&P 500 fund, a fund that tracks government bonds or a fund that tracks international stocks. Funds that track the S&P 500 are generally an effective way to earn a good return on your money over time. Historically, the average annual return for the S&P 500 hovers around 10%.
The Role Of Social Media And The Hype Cycle
Reddit’s r/WallStreetBets community is a prime example, where users share and discuss meme stocks, fueling the hype and influencing market trends. Fear of missing out (FOMO) drives many investors to buy meme stocks without proper research, leading to emotional trading and bad decisions. You might not time the market correctly when investing in meme stocks. A meme stock’s trading volume may rapidly decrease, leaving you stuck holding the proverbial investment bag.
Meme stocks may make you rich, but here’s why your money is better off invested elsewhere.
As Big Tech names announce earnings, other companies that are typically out of the spotlight have seen their stock swing on seemingly no news — it’s a revival of meme stocks. Most meme stock rallies are short-lived; days or weeks, rarely months. When attention fades, liquidity dries up and prices return to realistic levels.