There are fewer shares left available to borrow as more and more shares are sold short in this way. Even the most motivated short seller may be unable to do so when a stock becomes hard to borrow. Bed Bath & Beyond announced intentions to sell 12 million shares in a secondary offering in 2022 as meme stock promoters pumped the value of its stock. The stock fell steeply following the company’s announcement of the plan, however.
Should Beginners Invest in Meme Stocks?
A broker like Vanguard is a good choice for passive investors who want to hold funds long-term as it doesn’t offer many tools for those who are more active traders or interested in short-term trading. Expense ratios (basically the management costs) for its ETFs and mutual funds are some of the lowest around, with an average of 0.10%, meaning every $10,000 invested costs $10 annually. Below, CNBC Select explains these types of investments, plus where you’re likely better off putting your money instead.
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Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Fidelity is not recommending or endorsing this investment by making it available to its customers. The result has been a collection of stocks featuring unusual trading activity and significant volatility. Meme stocks didn’t truly emerge until the year 2020 via the Reddit forum r/wallstreetbets, however.
- Meme stocks gain traction on platforms like Reddit, X (Twitter), Discord, and where retail investors discuss and promote specific stocks.
- The company builds enterprise big data and AI software that helps organizations update their operations for a digital era.
- Roaring Kitty is Keith Gill who was also on Reddit as u/deepF…Value and active on the subreddit r/wallstreetbets.
- The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024.
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- This dynamic mirrors how a stock market bubble forms, when prices drift too far from reality before correcting sharply.
- Less than two years later, after the initial meme stock craze had largely died down and in true meme stock fashion, Roundhill announced the closure of the Meme Stock ETF.
- However, it could mean those investments share features of a certain kind of trend trading, creating the potential for them to get caught up in irregular trading activity.
Most traditional investors are What Is Bitcoin institutional investors or long-term investors, rather than retail traders. This means they’re often less influenced by online communities and more by sound financial analysis. The rise of meme stocks shows how connected retail traders can influence prices on a global scale. This crowd-driven market behavior has become a structural factor that analysts now track seriously.
For many retail traders, meme stocks symbolize empowerment, small investors standing against Wall Street institutions. New waves of online traders occasionally revive interest in struggling companies, proving that this isn’t a one-time event but a recurring stock market buzz trend. Retail investors share memes, screenshots, and strategies, creating waves of stock market buzz trends that amplify buying pressure and visibility.
Learn how a gamma squeeze magnifies volatility and fuels extreme price spikes. If gambling or speculating, rather than investing, is your idea of accumulating wealth, then buying meme stocks is the way to go. However, simply writing off all meme stocks as too risky can be a mistake. For the right person, investing in the right meme stock for the right reasons can make a lot of sense.
Other names like Bed Bath & Beyond, BlackBerry, and Nokia briefly joined the movement, showing how quickly viral stocks could rise and fade. A member of the hot 2020 IPO stock class, Palantir quickly gained a large investor following after making its public debut. The company builds enterprise big data and AI software that helps organizations update their operations for a digital era. Palantir has concentrated exposure working for government entities, but it’s quickly working to expand further into the private sector. SoFi’s financial services — all unified together via a singular app — got its start in the student loan niche of the industry. But since becoming a public company, the fintech stock favorite has gotten aggressive, expanding its reach and has added a few million new customers in recent years.
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They allow people to rapidly spread humorous, interesting, or sarcastic videos, images, or posts around the world. The rapid and multiplicative effect of sharing such posts can make them go viral. Traditional investing typically has a moderate to low risk level, depending on the asset type and diversification. This is a key benefit for those who want to build wealth over the long term. The “stonks” meme symbolizes investing as a cultural movement rather than a financial one.It reflects humor, defiance, and a willingness to embrace risk for collective identity. What begins as a joke or protest can evolve into a full-scale social media stock surge, turning obscure tickers into trending topics.
Known for her economic reports and analyses, she covers financial assets, market news, and company evaluations. She has managed finance departments in brokerage firms, supervised master’s theses, and developed professional analysis tools. Allocate no more than a small percentage of total capital to speculative stock movements that rely on online sentiment. The meme stock definition generally refers to a stock whose demand is fueled by online attention rather than fundamentals. What is a meme stock, and why did names like GameStop and AMC shake Wall Street?
Charles Schwab has funds that are straightforward options with no investment minimum. Expense ratios can be as low as 0.02%, meaning every $10,000 invested costs $2 annually. This information is intended to be educational and is not tailored to the investment needs of any specific investor. Meme stocks are often hard to borrow with a high short-interest ratio.
Key indicators to watch
Pump-and-Dump Schemes are a major concern when it comes to Meme stocks. Retail traders buying large amounts of a stock can drive the price even higher, as seen in the case of GameStop’s historic price surge in 2021. Advisory services are provided for a fee by Empower Advisory Group, LLC (EAG). EAG is a registered investment adviser with the Securities and Exchange Commission (SEC) and an indirect subsidiary of Empower Annuity Insurance Company of America. Advisory fees are calculated based upon the amount of assets being managed (as detailed further in the Empower Advisory Group, LLC Form ADV). The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice.
Price performance may depend on investor sentiment, which can change quickly. Less than two years later, after the initial meme stock craze had largely died down and in true meme stock fashion, Roundhill announced the closure of the Meme Stock ETF. According to media reports at the time, the reason for the closure was lack of interest from day traders and too little trading volume. This shift explains what causes stock prices to deviate from fundamentals. Meme stocks can skyrocket for weeks, only to crash once the online buzz fades, a clear example of emotion overpowering evaluation. In this guide, we’ll break down how meme stocks work, what drives their wild swings, and what every trader should know before joining the next viral investing trend.
Social media activity is the main driver of the prices and trading volumes of meme stocks, noted Britannica Money. “The hype of meme stocks is generally not based on changes in the underlying company’s fundamentals of financial performance,” wrote Britannica Money, but in messages on social media. These posts didn’t make any recommendations or indications about GME or any other stocks but they reignited frenzied interest in meme stocks, causing a massive surge in trading volume and price. GameStop shares skyrocketed nearly 100% on Tuesday, May 14, 2024 following a 74% increase the previous day. This rapid price appreciation caught short sellers off guard, resulting in significant losses estimated at over $1.3 billion in just the two days following Gill’s tweets. In traditional investing, strong financials and growth potential are what matter most.
Risks And Rewards Of Investing In Meme Stocks
The short squeeze that the Roaring Kitty had suggested earlier took place in earnest in January 2021. The price of GME shares exploded to nearly $500 amid a frenzy of short-covering and panic buying. Chat rooms and discussion boards devoted to investing and promoting stocks arose with the arrival of the internet.
Covering these shorts adds buying pressure and pushes prices up even more. This panic buying pushes prices even higher, feeding the volatility-driven investing cycle typical of meme stocks. A single post or viral video can spark mass enthusiasm, triggering a social media stock surge that sends prices soaring within hours.