What Is Investing MeMe ?
Investing Meme Phenomenon took U.S. stock exchanges by surprise in end of 2020 and beginning of 2021. What are meme stocks is something few of us can still ask as we witnessed so many meme stock pump headlines this year that we couldn’t miss them even if we tried.
Investing meme stocks in 2021 are causing an unprecedented situation on the stock market and the SEC (Securities and Exchange Administration) had to intervene and set new rules in to bring back order in the chaos created.
We do not recommend investing in meme stocks because this is not a good financial strategy for most any investor, but we hope you can learn from this article about the risk associated with meme stocks and meme investing in general.
In the end it is up to you how you spend your money and if you decide to invest in meme stocks then you do it at your own expense and risk depending on your personal tolerance for volatility and loss.
What Are Meme Stocks ?
Meme Stocks as a basic definition are stocks which are driven by hype rather than diligent research and investing logic, and their value has recently and drastically increased, not by company performance but fueled by social media popularity .
This word MEME comes from social media and has grown in popularity over the past few years to the point that it has invaded even the stock market. Meme stocks have become the keyword used by many beginner investors and experienced alike when they are searching for new instruments to invest in that seem to have the most potential for profit short term.
Meme Stocks are the effect of social media influence on the stock market
Meme stocks usually start their ascension on forums engines like Reddit and Twitter, and the best example of such meme stock is the famous GME (GameStop) Stock. Before becoming a MEME STOCK, GME was a low interest video game retailer stock that traded around 18 USD per share. This all changed on 28 January when GME Stock started the FOMO MEME SURGE and went to an all time high of 484 USD per share.
The main idea is that the more people invest in that particular meme stock, the higher that meme stock price reaches. Social media investors continuously pump up the stock prices by convincing as many other people as they can, to keep buying and holding the stock. Fomo kicks in when the price surges and attracts even more investors who risk getting in late but they cannot help themselves not risking it. This is how the price continues to surge even more, and the story goes on and on until it doesn’t. g
The MEME Stock – GME Stock
So becoming a Meme Stock GME Stock price managed to surge a staggering 2,450 percent in few days. This has collapsed many hedge funds investments in GME as normally they prefer shorting stocks and some of them lost so much money that they can never recover after this GME meme hit them.
This GME Meme was actually started on a Reddit social media group who planned to hurt the hedge funds for shorting the stock market particularly the GME stock in this instance. Sorting investing, for those who have no idea what that is, is like betting on a company price to drop instead of it to gain value.
At the time of the GME MEME early days, this wall street bets group on reddit also pumped some other stocks of companies like AMC, Bed Bath and Beyond and Blackberry. Same like in GME case these tickers surged to all time highs but not qiuite as extreme like it happened to GameStop stock.
Meme stocks are extremely high volatility stocks
Meme stocks are extremely high volatility stocks that have surged in valuation from recent popularity from investors especially millennials who just started investing and use meme investing just like buying lottery tickets. Millennials normally want to be millionaires until they reach 30 years old and investing memes is the way they usually follow in the hope for early retirement and permanent vacation.
All meme stocks have their own backstory and they build their hype based on this story. Usually this type of stocks come from a company that is supposed to have some sort of future problem-solving plan, and the hype plays along this story benefitting the ones who sell early but greatly impacting on the budget of those who hold for longer.
MEME Stock is the FOMO stock
Another word associated with the term MEME Stock is the FOMO stock. Fomo defines as the fear of some investors of missing out on a popular and allegedly profitable investment usually a meme investment. Anxiety for not buying in time and exciting to buy and get in the game with the ones that already own the stock. The problem is that FOMO gets in late and the excitement turns into anxiety again and usually leads to panic selling.
Basically the 2 terms mean the same thing, just the second one is usually associated more with the new investors that start buying in the meme a bit too late and thus helping the initial investors cash in their pump and dump scheme.
FOMO phenomenon became a great motivator for most people to buy a meme stock and on the other side of the coin the panic selling Fomo is most common when the stock didn’t go in the desired up direction, again adding to gains for some people and loss for others, all this increasing the stock volatility and risk.
Investing in Meme Stocks
Because the volatility is much stronger than with regular stocks, a good entry point and a good amount of sheer luck on your behalf can get you to see a few hundred percent or even a few thousand percent increase in your investment in as little as 1 day but this volatility implies that the other side of the glass is also applicable.
You might also lose with the same amount of momentum you might win. The meme stocks and not just volatile, they are extremely volatile.
Meme investing has a high potential for fast profits, sometimes increasing investor’s earnings drastically but meme stocks are also extremely unpredictable. Their stock prices are based on hype and not on economic business fundamentals.
Meme traders are basically gambling on the US stock market rather then investing in it’s stocks. Stocks normally have a price value based on the financial and business performance fundamentals of their companies.
In meme stocks, the company fundamentals do not matter at all and the gambling with the price volatility is just speculation. Trading in it’s true form is not supposed to be price speculative but financial fundamental performance driven.
All this being said, it is known that you can make a lot of money buying Meme stocks but that also requires that you must know when to sell and when to buy some more.