Most users view their social media profiles several times each day. People usually see opinions from their friends and also a multitude of memes. Like these entertaining memes, meme stocks are estimated to rise in value since people are constantly posting about them online, not because the overall stock price is projected to grow.
Before the influx of apps like Robinhood and Acorns, people needed to extensively study stock markets to have a clear picture of a good investment, what to keep and what to sell. Now, as social media is on the rise, everyone is becoming a stock expert. According to The Balance, Misty Lynch, a certified financial planner with Beck Bode, wrote, "It is really a category for stock that has seen rapid growth and attention on social media channels like Reddit and Twitter. The valuation may not line up with the price changes—or the hype."
Earlier this year, the subreddit r/wallstreetbets disrupted the stock market. They increased the value of Game Stop stock through multiple posts, resulting in significant losses for hedge funds, up to $1 billion per day. According to MSN (2), It's quite an accomplishment for a feed that began in 2012 and became an "irreverent and sarcastic" place for people to discuss Wall Street, according to MSN. Currently, novice investors are having a profound impact on the rise and fall of the stock market. Former technology consultant Jaime ROgozinski, started the subreddit, stating that it was undervalued and encouraged people who had the store to hold onto it. Now he is using his notoriety to encourage amateur investors, even doing interviews on TMZ. In the interview, he discussed the original concept for Wallstreet Bets. He wanted to create a community for people who weren't focused on long-term investing, wanting only to buy and sell stocks quickly and make a large amount of capital. Eventually, it became a place for people to share sarcastic thoughts about hedge fund managers.
Keith Gill is the one who saw the underevaluation of Game Stop Stock. According to Wall Street on Parade, Even though Gill posts under an irreverent name, he isn't a stock buying rookie; many news outlets made this mistake when reporting on the story. Gill holds multiple trading licenses and is a supervisor for Wall Street. This example illustrates that even though people use absurd handles on social media, they aren't unqualified. However, using this strategy makes stock buying more accessible. Additionally, the irreverence draws more attention to an industry that sometimes resembles an exclusive club only accessible by people with years of training. The term "meme stock" may be a misnomer because the viral frenzy behind buying and investing in trending stock may result in heavy losses. Many financial advisors caution against purchasing the stocks rapidly despite admitting to buying them for themselves or their clients.
Let's go to the movies
According to CNBC, On June 2, another Meme Stock is emerging. AMC Entertainment has seen a 100% increase which stopped trading several times. However, this rise is not just because individual investors are investing. As Meme Stocks rise, many firms are starting to follow these trends, and that is a complete 180-degree turn from an earlier generation of investors. Investing firm Mudrick Capital, an investment firm, has reported losses, most likely due to the rising trend; and became one of the big investors in AMC, buying and selling 8.5 million dollars.
Buying and selling
The rise of Meme Stocks began during the pandemic. People had time and used large amounts of their stimulus checks to invest, hoping to sustain themselves during uncertain financial times. As more people did the same, they began to gravitate towards apps like Robin Hood, gaining knowledge and becoming more comfortable with making investments. As a byproduct of the growth of the community, stocks like Game Stop and AMC, among others, started to trend, and prices began to rise. Purchasing and selling Meme stocks is a trend that is projected to continue. However, there are many things a potential investor should consider. Meme stocks are similar to entertainment. People are trying to make money at the end of the day, but they're buying stocks if they're gaining popularity, much like a new fad. Therefore, it is wise to invest only as much money as you might for a pair of boots that you'll wear for a single season. According to Nasdaq, Meme stocks are sparked by small traders who cause a "short squeeze," which is an investment term for people who buy stocks with the intent of selling quickly before the price drops. It's a risky investment because once the popularity dies, the value of the stock sharply decreases.
Although the phrase Meme Stock is a reasonably new term, purchasing stocks because of popularity is not. Although the term"Meme Stock" is relatively new, buying stocks based on their popularity is not. The late 90s was when the internet was on the rise. Many people were overly confident in their future predictions of business and online commerce. In the late 1990s, the internet was flourishing. Many people were overly optimistic about the future of business as well as online marketing. There was an invasion of dot-com companies, and many of them achieved enormous success. During this era, many of these companies were overvalued, leading to significant losses for those who purchased stock, culminating in the 2001 stock market crash. Companies like Amazon and eBay were part of this surge and still enjoy growing success. However, businesses such as pets.com experienced brief success before sinking in value and eventually stopping operations. Success and loss are equally possible when investing in the stock market. Meme Stocks are one way future stock investors feel confident investing their money. However, the previous surge of Meme Stock investing is a cautionary tale. Some businesses will thrive as a result of their exposure via social media postings. However, extreme confidence may lead to another stock market crash comparable to the one twenty years ago.
Written by Allen Lee
Read more posts by Allen Lee