Often the popularity of a stock is based on the Internet memes that have been shared among traders. The popularity of a stock is also based on young investors who have access to social media. These types of stocks have little or no revenue and are prone to high volatility.
GameStop is the first meme stock
During the early 2021s, GameStop became the first of what would become a flurry of internet-based meme stocks. While most of these stocks have fallen back to their original levels, others are still rising.
Meme stocks are a way for everyday traders to beat the Wall Street at its own game. This is achieved through commission-free trading. Many retail investors meet on Reddit forums or other online investing communities. They then buy shares of these companies, causing them to rise in value.
The popularity of these internet-based investment forums grew as the COVID-19 pandemic forced people to stay home. Some of the biggest names in the retail world, such as Chamath Palihapitiya, Elon Musk, and Ryan Cohen, were active.
As GameStop’s sales declined, it was hard for the company to stay afloat. Its balance sheet was shaky and the company was flirting with bankruptcy. In an effort to strengthen its financial position, AMC raised $900 million. However, the stock price of GME was still below the fundamental value of the company.
They’re volatile compared to blue chip stocks
Compared to blue chip stocks, meme stocks are more volatile. While they have the potential to generate huge returns in a short period of time, they also have greater risks. It’s important to consider all of these factors before making a decision on which investment to buy.
Meme stocks are shares of companies that have built a social media community around them. These communities often have a cult-like following. This has caused the prices of these stocks to rise and fall quickly. In fact, the majority of these stocks are currently trading off of their highs.
The first of these successful meme stocks was GameStop. The stock price for this struggling video game retailer jumped by more than 75 percent in just one year. Many investors lost millions.
Another success story was Dogecoin. It went from $0.0075 per share to $0.0849 in two weeks. It was an obvious joke. Then, in February, it exploded to more than $103.02. During this time, hedge funds were betting on the stock to drop.
They have little to no revenue
During the past two years, social media has become an important source for financial advice. Many young investors rely on online advice when making their investment decisions. The Internet has provided a platform for financial professionals to reach thousands of people.
Some of the most popular stock picks come from the internet. They are typically heavily shorted by large hedge funds. These funds have short positions on certain stocks because they believe the price will fall. They are then forced to buy shares to mitigate their losses.
The internet has also enabled speculators to monitor social media activity. Websites like Reddit and Twitter allow them to read what people are saying about certain companies. These online communities have coordinated buying and selling efforts to influence the price of their stocks.
While the social media frenzy has led to a rash of hyped up and overvalued stocks, some of these companies actually have solid fundamentals. For example, Home Depot specializes in home goods, accessories, and big data. The company also has a healthy profit margin.
They’re enticing to invest in
Investing in meme stocks sounds like a great way to build wealth, but they can be a bit volatile and risky. If you are looking to invest in this kind of stock, make sure you have a diversified portfolio.
Meme stocks tend to be heavily shorted, which means that a large number of shares are sold short. This is not a result of technical analysis, but of the psychology of the people. It is a way to capitalize on the hype on social media, which often drives the stock prices of these companies higher.
However, this strategy can end up doing more harm than good. While some investors have made millions of dollars, others have lost billions of dollars.
If you are a long-term investor, you should consider purchasing a stock that has a history of steady returns. You can invest in these types of stocks through your employer-sponsored 401(k) or IRA. You can also purchase index funds. These are a cheaper option.