Many Redditors and retail investors also use the term “diamond hands” in reference to especially volatile stocks or those that have declined in value. „Stonks“ is an intentional misspelling of the word “stocks,” and it is often used in online memes or investing internet forums such as WallStreetBets. The term “stonks” dates back to 2017 when it was used in a stock market meme that circulated online.
This comes from renewed consumer interest, along with a rebounding share price or the raising of fresh cash through capital markets when the stock price rises. The meme stock craze, driven largely by investors on social media platforms and in online forums like Reddit, caused certain stocks to go viral. Perhaps the most famous was the WallStreetBets Reddit thread that encouraged people to buy GameStop and AMC Entertainment stock at the beginning of 2021. GameStop’s stock price then surged due to a massive short squeeze affecting some major hedge funds that were short the stock and forced to sell to cut losses.
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Typically, if a stock you own becomes the focus of media hype, it may be time to consider taking a profit. The phrase “we like the stock” can be attributed to Jim Cramer, a CNBC media personality who discusses investing. Cramer originally said this phrase in a mocking manner to imitate GameStop investors, and it has since become a popular meme on the forum. On the other hand, “paper hands” describes someone who sells a stock at the first sign of trouble rather than holding it for the long term.
There’s even a fear indicator (CBOE Volatility Index, or VIX) for contrarian investors looking to base their entrances off of others’ exits. For privately held companies, corporate value stems from the bottom line. For public companies, much of their value comes from market capitalization. Shares are worth what people are willing to pay for them (aka market value). Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
- While an ETF such as MEME may be less risky than holding one singular stock, it’s still made up of high-risk investments that could just as easily plummet as skyrocket.
- The hedge fund Melvin Capital lost nearly $7 billion, more than half its capital, by short selling GameStop and other meme stocks.
- The new movie „Dumb Money“ is about the GameStop craze in 2021 when amateur traders banded together on the social media site Reddit to give professional investors a run for their money.
- Put another way, he says, these situations are not quite Ponzi schemes, but share some similarities.
- So while it might be a positive thing that these meme stocks have increased interest in the stock market, in the end, experts recommend following a much more prudent investing strategy.
- Reddit is a community platform where people around the world can write whatever they please.
While some Reddit traders were able to make a lot of money in a short amount of time by buying and then selling AMC and/or GameStop at the exact right moment, investing in meme stocks is generally very risky. Collectively, their independent actions have been shown to initiate short squeezes in heavily shorted names. As a result, meme stocks can become overvalued relative to fundamental technical analysis. Because meme stocks see an increase in trading volume as a result of social media attention rather than a company’s performance, in most cases, the risks of investing in this space are very high. Meme stocks are prone to high volatility and spikes of rapid growth, followed by dramatic drops in price and value.
GameStop and the dawn of the meme stock era
This social sentiment is usually due to activity online, particularly on social media platforms. These online communities can dedicate heavy research and resources toward a particular stock. Meme stocks often have heavier discourse and analysis in discussion threads on websites like Reddit and posts to followers on platforms like X (formerly Twitter) and Facebook.
Why Are They Called Meme Stocks?
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What is WallStreetBets?
The stock might see a surge in its stock price, not because of the company’s performance, but because of this viral attention. An example of a meme stock is GameStop, which went viral in early 2021 after being featured in WallStreetBets. Because meme stocks depend on social popularity rather than company performance, they have their own set of risks and rewards.
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The traders gained a lot of attention because they caused Wall Street institutional investors, many short-selling hedge funds, to lose millions of dollars. The phenomenon coincided with the pandemic lockdowns and work-from-home mandate, and was fueled by new investing apps that made buying and selling as easy as a single click. forex trading vs stock trading The YouTube persona Roaring Kitty posted a future viral video laying out the case for why shares of brick-and-mortar video game retailer GameStop Corp. (GME) could soar from $5 to $50 per share in August 2020. A meme stock refers to the shares of a company that have gained viral popularity due to heightened social sentiment.
In the late 1990s and early 2000s, these sites helped promote and drive up the prices of so-called dotcom stocks—a bubble that famously burst with far-reaching economic consequences. The term is generally regarded with a negative connotation, sometimes contributing to a person’s indecisiveness or overcommitting to obligations,” Morningstar Canada’s director of investment research Ian Tam explains. Analysts say that Wall Street is making a profit even if the initial meme stock frenzy took a bit of getting used to.
Where the ‚meme stock‘ phenomenon stands, 2 and a half years after the GameStop craze
A meme stock is a stock that has gone viral online, drawing the attention of retail investors. While it is possible to make money with meme stocks, it is an extremely risky venture. Meme stock investing relies on trying to time the market, which humans, even those professionally trained, are notoriously bad at. It also depends on knowing which stocks will pop and which won’t — which is essentially impossible. Single stock ETFs have also recently been introduced, which provide leveraged long or short positions on a single stock.
Then the company’s shares rebounded later that month as online forums linked its shares to those of GameStop, which was soaring on news of Ryan Cohen’s investment. AMC Chief Executive Officer Adam Aron decided to engage the social media crowd. In early May 2021, with the stock under $10, he began using Twitter to heavily publicize the reopening of the chain’s venues and to tout blockbuster movies coming to AMC theaters. Meme stocks are popular in part because they can result in a big win over a short period of time. Buying up cheap shares to have them skyrocket in price results in a large payout.
In 2020, some stock trading enthusiasts became aware of some hedge funds’ short selling of GameStop and other stocks and decided to take the risky move of trying to exploit those positions. This effort was led by a community of amateur stock traders on the social media site Reddit, specifically the subreddit (forum) /r/WallStreetBets. Their plan involved buying large amounts of GameStop stock, using online trading platforms such as Robinhood. In 2021, the sudden buying spree https://g-markets.net/ caused GameStop stock to quickly rocket upward in price. The result was what’s known as a short squeeze, in which the price continued to climb as short sellers (notably the hedge funds) desperately tried to buy back shares before the price increased even more. Named after the virality of internet memes found on social media, these stocks saw online communities form around them to boost and hype their prospects, even though meme company fundamentals remained questionable.
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