This led to user outrage along with class action lawsuits as well as regulatory fines and restitution of approximately $70 million. The main victims of the squeeze ended up being a handful of hedge funds, some of which were forced to shut down due to heavy losses. As a result, the meme stock concept adopted a David vs. Goliath or Robin Hood connotation of taking from the rich Wall Street elite and rewarding the small retail investor.
- Some of the more popular meme stocks, such as AMC and particularly GameStop, continue to have higher stock prices than before the short squeezes in 2021.
- The incredible surge of GME stock last year, which took its shares from around $4 in mid-2020 to more than $480 per share in January 2021, was one of the most incredible near-term short squeezes I’ve ever seen.
- Like GameStop, NOK stock jumped by an incredible amount in early 2021.
- If many shorts are forced to cover at once, it adds additional upward pressure on the stock’s price as they are all forced to buy the stock and cover at ever higher prices.
- Roundhill Investments came out with a meme stock-focused ETF in December of 2021 under the ticker symbol ‘MEME’.
I believe that the meme stock rallies we’ve seen play out in recent years aren’t likely to become commonplace. The IPO market has been pretty quiet over the past two years, but that may be about to change. Investors witnessed a successful debut for AI chip play Astera Labs (ALAB) on Wednesday, which soared 72% in its first session, and suspense is building for another possible one today. However, as a shareholder of Intercept I can also attest that there are justifiable reasons for people to be pessimistic.
Yet what really stands out is its muted average daily volume of 1.36 million shares. It would take almost six full days for short-sellers to cover their positions, based on this three-month volume data. The word « meme, » from the ancient Greek word « mimema » — meaning imitation — is used to describe information that is imitated and often spread via pop culture references on social media. Thus, a meme stock is a shared investing idea imitated by other investors. If you’re thinking about buying and selling meme stocks, keep in mind that you will probably have to pay taxes on your profits. Capital gains tax rates are especially high on stocks you held for less than a year.
The price increase drove out some short sellers early on as it attracted various big-name investors and public figures, such as Elon Musk and venture capitalist Chamath Palihapitiya. Stocks are sold short on margin (because they involve borrowed shares). As the price of the shorted stock rises, the short seller will begin to experience losses.
Meme stocks, however, didn’t truly emerge until the year 2020 via the Reddit forum r/wallstreetbets. Unlike its predecessors and other investing message boards, WallStreetBets became known for its unconventional and often irreverent tone. In this and other forums that have popped up veсhain price prediction 2021 2022 2025 2030 since, users work together to identify target stocks and then promote them, while also putting their own money to work. The other catalyst, as you might expect, is the right recipe for a short squeeze. As of May 28, a little over 7.8 million shares of the company were held short.
Meme Stocks and Short Selling
The meme stock movement unofficially started in the summer of 2020, when most people were stuck at home during the first few months of the pandemic. Looking to turn some of that extra free time into money, many people turned to the stock market and social media for ideas. Small-time traders flipped the script on hedge funds by driving the price of the heavily shorted shares up, forcing the bears to close their positions by buying back borrowed shares, which perpetuated the cycle. Roundhill Investments came out with a meme stock-focused ETF in December of 2021 under the ticker symbol ‘MEME’. MEME features an equal-weighted portfolio of 25 stocks based on social media popularity and market sentiment.
How the meme stock movement began
The SoFi Social 50 ETF (SFYF) and VanEck Social Sentiment ETF (BUZZ) are similar — they track stocks with positive sentiment among traders and social media users, and thus have substantial exposure to meme stocks. Hedge funds are types of investments that pool money together from wealthy investors, and short selling is when you borrow shares from a broker and immediately sell them with the hope that the stock price will fall. If it does, you can repurchase the shares at the lower price, return them to the brokerage and keep the difference as profit. Without their cult followings, meme stocks are not necessarily valuable assets. These online communities, such as the popular Reddit forum WallStreetBets, coordinate buying and selling efforts to influence stock prices. With enough online support, meme stocks can maintain elevated stock prices regardless of the underlying company’s worth.
More traditional investors decry the lack of business fundamentals and strong performance to justify sharp surges in stock price. On the other hand, as individual investors point out, given enough support from the masses, a climbing stock price (regardless of current fundamentals) can eventually equate to a stronger business. This comes from renewed consumer interest, along with a rebounding share price or the raising of fresh cash through capital markets when the stock price rises.
Critics have said the practice creates « false markets » and reflects how the market is broken. Insider has interviewed investing pros who have simple strategies for spotting meme stocks, as well as the creator of a site that saves investors time by scanning Reddit forums for the next big meme stock. Single stock ETFs have also recently been introduced, which provide leveraged long or short positions on a single stock. Only a small number of these have been approved for trading so far, but do include some meme stocks like Tesla and NVIDIA. Again, doesn’t sound like much — but it’s quite a bit when the total float is only 28.3 million shares.
This creates an event where short-sellers run for the exit, causing a rapidly rising stock to skyrocket higher as short-sellers buy to cover their position. Video game and accessories retailer GameStop is the perfect example of what can happen when the conditions are absolutely perfect for a short squeeze. Meme stocks lure investors with the promise of potentially big returns in little time.
He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. It’s also possible that small-cap biotech stock Intercept Pharmaceuticals (ICPT) becomes the next Reddit https://www.topforexnews.org/brokers/capital-markets-analyst-jobs-in-san-francisco-ca/ meme stock. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. A member of the hot 2020 IPO stock class, Palantir quickly gained a large investor following after making its public debut.
While it is possible to make money with meme stocks, it is an extremely risky venture. Meme stock investing relies on trying to time the market, which humans, even those professionally trained, are notoriously bad at. It also depends on knowing which stocks will pop and which won’t — which is essentially impossible.
About RDDT Stock
Similar to Blink, there are two reasons it’d make a perfect meme stock. First of all, retail traders are big fans of left-for-dead turnaround stocks in the wake of the pandemic. There were serious concerns last year that Dave & Buster’s might not survive. But more than a year after the coronavirus pandemic was declared, things look to be perking up. However, Blink certainly fits the definition of « meme stock » if you get a closer look at its operating performance. The company produced (drum roll) only $2.23 million in sales during the first quarter (it’s a $1.62 billion company, for context).
Where Are the Meme Stocks Today?
The harsh reality of markets is that for every buyer, there must be a seller. For every trader that nailed the bottom of a stock, someone else sold at the worst possible time — and every time an investor sells at the peak, someone must have bought ahead of the crash. Some unlucky soul bought GameStop shares at its all-time high of $483. Below is a comprehensive breakdown of Insider’s coverage of the meme stock movement and how investors can profit from it. While GameStop was the first successful meme stock, it was not the only one. WallStreetBets users quickly identified other downtrodden stocks with heavy short interest to boost.
This Canadian company is known for pioneering the smartphone, but it quickly went by the wayside when Apple revolutionized the space. These days, Blackberry is a software firm providing endpoint security software and other Internet of Things management https://www.day-trading.info/top-10-robinhood-penny-stocks-to-watch-in-march/ products for customers such as the auto industry. Its (free cash flow was negative $1.8 billion in Q1 of 2023. Rivian needs to get itself to breakeven before its cash and short-term investment balance ($11.2 billion at the end of March 2023) dries up.