What is a Meme Stock?

Memes are comedic pieces of content, i.e., an image, video, or text, that people copy and spread rapidly across the internet, primarily through social media. They have solidified a place in popular culture.

In the same way, a meme stock is a ticker that garners a cult following across the internet through discussion boards, social forums, and group chat rooms where users build hype for a particular stock. This attention is usually garnered through social sites, such as Reddit and Facebook.

Some of the most popular meme stocks have been GameStop (GME), Bed Bath & Beyond (BBBY), and AMC Entertainment (AMC). As you can see, meme stocks are real companies with real stocks. The “meme” part of it is how people can leverage social networks to influence the popularity of a particular stock for a profit.

If you’ve invested in a meme stock before or have followed the news surrounding some of these popular meme stocks, you know how volatile they can be. The share price can depend entirely on the movements of the group hyping up a stock rather than the company’s true fundamentals. 

The History of the Meme Stock

The history of meme stocks is relatively short. Not many companies solicit private funding from qualified investors with accredited investor status certificates in private markets. The first meme stock to exist was GameStop Corp. (GME). It all started in August 2020, when Keith Gill (@RoaringKitty) posted a Youtube video laying out the case for why shares of GME could go from $5 to $50 per share. He also shared his theory on r/WallStreetBets, where a slew of retail investors gathered around. And only a few months later, in January of 2021, GME hit almost $500 per share.

How? At the time of Gill’s video, numerous hedge funds were holding short positions on GameStop Corp., betting the price would decline. But retail investors from the Reddit group rallied behind the stock, its price rose, and those hedge funds were forced to cover their positions, which drove the price of the stock even higher. Some hedge funds went bankrupt, and some retail investors walked away with millions.

Since the mania surrounding GameStop, many more meme stocks have been the topic of r/WallStreetBets and experienced the rise and fall that comes with that kind of popularity. 

As of September 2022, the WallStreetBets subreddit had 12.6 million members. With that kind of following, it’s easy to see how stocks garner mega attention and rise and fall quickly. But it’s not just Reddit. Meme stock communities exist on Facebook, Twitter, and Youtube too.

These communities leverage their mass followings to influence the prices of meme stocks. They can propel the share price through coordinated efforts, and they can make the necessary trades through easily accessible brokerages like Robinhood.

Investing in Meme Stocks

Following the trend of investing in memes, stocks are a risky business. Even when shares of GME did peak, a number of retail investors couldn’t even sell as Robinhood halted trades. And the peak only lasted a day before the share price fell sharply.

From the company’s perspective,learning how to verify accredited investors to solicit private funding from qualified investors is a good way to avoid the company from becoming a meme stock. From the investor’s perspective, High-risk, high reward is the motto of meme traders, but trading overvalued, underperforming, highly volatile stocks isn’t the M.O. of the serious investor. As with any stock, the decision to invest should be based on actual company data, not peer pressure.