‘Meme Stocks’ Have Been in the Headlines Lately, But What the Heck Are They?

A what stonk?!

If you’ve spent any time perusing the madness that is the internet lately, you might’ve stumbled across meme stocks.

They’ve been making headlines since the infamous GameStop saga, so what exactly are they?

Before you scroll on because how the stock market works can often be confusing, sometimes even boring, hear us out because this could change Wall Street someday.

The basics.

Meme stocks are pretty much when a company’s stock price experiences rapid fluctuations due to heightened online activity, including on social media.

Dedicated digital communities can spend a heap of time researching particular stocks, which leads to more chatter about them in discussion threads on Reddit, or X/Twitter.

They’re called meme stocks because a meme is obviously something that goes viral, and ideas about meme stocks also spread rapidly online. Plus, meme stocks often have communities built around them to hype up and elaborate on the original meme.

The first meme stock: GameStop

Throwing it back to 2021 when we are all locked down at home (thanks ‘rona), and this is really when meme stocks as they’re now known became a hot investment.

Unless you had sworn off social media entirely (which we wouldn’t blame you) you would remember a little story about GameStop.

The struggling US game store company, who are actually the parent company of Aussie-fave game store, EB Games, was in hot water financially.

We wrote all about it at the time in this story, but let’s give you a quick re-cap.

Investors were predicting the downfall of GameStop (think: Blockbuster) and so big-time investors decided to ‘short’ GameStop’s stock, meaning that they were betting the share price would plummet.

If they were right, they’d make some pretty profits, but if they were wrong and GameStop’s stock price jumped up, they’d lose all their cashola.

Meanwhile, Reddit users on a page called Wall St Bets were banding together to prevent finance bros from profiting from the much-loved company’s demise. They all started buying GameStop stocks, driving the price up and up and up.

As a result, the big-time investors who had initially bet against GameStop’s success decided to then buy into it as the price continued to rise.

This is also known as a ‘short squeeze’ when a stock’s value jumps and traders who had bet on the decline of it then purchase shares to try to lessen the blow of their losses.

GameStop’s stock price kept climbing, Reddit users made huge profits, and giant investors who shorted the stock found themselves outsmarted at their own game and lost a lot of money.

 

Are they actually real stocks?

Meme stocks are actual stocks listed on exchanges and available to trade, making them 100% real.

But critics do argue that their price and performance have little to do with the stock itself and more to do with the entertainment value, like playing a fun casino game.

According to Investopedia, critics also believe meme stock communities coordinate their efforts to influence meme stock prices, but often shareholders are just a mumble jumble of individuals, each with their own investment preferences.

It’s just that collectively, their individual actions can initiate short squeezes in heavily shorted names, overvaluing the meme stocks.

So there you have it, the power of the internet (and memes)! Stay tuned to see where meme stocks end up in the future.

This article does not constitute personal financial advice. Before acting on any information in this article, you should consider your money goals and financial situation to ensure it’s appropriate to you.

Header Image: Youtube