While a year ago, we wouldn’t have been quite privy to knowing the term ‘meme stocks’, today everyone who invests in the financial markets or maintains an active presence on social media knows what it means. With the marvels that have been rendered during the excruciating pandemic which affected the entire world, meme stocks have emerged as one true pandemic induced phenomenon which have stayed in trend. Here’s all that you need to know about meme stocks!
What are meme stocks?
Under the radar stocks which are listed in the US market without having any particular base but have caught the eye of individual investors after becoming the subject of attention on social media are categorised as meme stocks. When retail investors collectively thwart the big guys in short sell positions and buy them for fun while increasing awareness on Reddit forums and social media at large, meme stocks earn an even bigger reputation for themselves. They thus give high returns, sometimes, 50 to 100 per cent in a day.
How has meme investing affected large corporations?
While the risk of short selling has gone up manifold, meme investing has certainly developed a reputation for brands and helped build their portfolio. AMC Entertainment, a cinema theatre chain as well as video game retailer, GameStop have gone on to raise over $1 Billion in figures when their stocks rallied. While hedge funds who short sold their stocks have lost a whopping $12 billion in just six months time!
How does the meme stock cycle work?
At the onset, a large chunk of people believe that a particular stock is being undervalued and hence buy in large quantities because of which the price of the stock starts increasing. After a certain period of time, when the price keeps on increasing after more and more individuals start purchasing it, the price starts to skyrocket. At this point, word on social media about the stock becomes rife and while those who initially bought the stock realise that it is time to book their returns, some still hold on to their stocks. The price soon starts to plummet. The play of social media in these stocks makes it extremely crucial for an investor to keep himself up-to-date with meme stocks and be able to gauge the traction that it will gain since it only depends on the virality of the stock. Paying attention to Reddit or Youtube is a must.
Should you invest in these stocks?
As an investor, it’s quite necessary to understand how the system works with small traders bringing about such a large impact. However, the market is extremely volatile when it comes to meme investing. There are high chances that you may not see a return and as a result, it is advisable to rethink your risk appetite before getting down in the field of meme stocks.
For as long as social media is in play, meme stocks are bound to deliver and become huge. Retail investors will continue making such trades until some regulations are set in place which restricts meme stock trading. However in recent times, meme stocks have garnered a lot of attention with the pandemic and the going concern of these stocks post the pandemic is still being debated over.
What is your take on meme stocks? Tell us what you think!
