Meme stocks

  • Meme stocks are a post-pandemic trend where retail investors rally together online to short squeeze a publicly listed company
  • GameStop saw its share price surge 29x in a month before crashing 85% the following month in 2021
  • Meme stocks are categorised by their extreme price volatility, hedge fund short interest and juvenile slogans like ‘to the moon’ and ‘diamond hands’

Meme stocks are shares of companies that experience significant and rapid price movements due to promotion on social media platforms or online forums. They gain popularity not through underlying business fundamentals, but rather due to viral trends and hype from inexperienced retail investors. Meme stocks usually have a high short interest, meaning many investors are betting against them. When retail investors pile in, the stock price rises and short sellers are forced to buy shares to cover their positions, driving the price even higher – known as a short squeeze.

GameStop (GME to the moon)

The most famous meme stock, GameStop, saw its share price skyrocket at the start of 2021 due to a short squeeze co-ordinated on Reddit, an online forum. It went from a price of $17.25 to over $500 in a month, nearly 29x! At the heart of this rally was a Reddit and Twitter user named Roaring Kitty who had been investing in the stock since 2019, regularly posting about the value on offer in GME. Eventually, there was enough discussion and enough stock being shorted that the wallstreetbets subreddit believed they could trigger a short squeeze.

Whilst initially successful, the stock inevitably came crashing down over 85% in the two weeks following its peak on 27 January 2021. Extreme price volatility is a defining characteristic of meme stocks. The expression ‘Diamond Hands’ is often used to describe the investors of Reddit and Twitter who can handle these price fluctuations and hold onto stock despite enormous losses. The other iconic phrase associated with GME and meme stocks is ‘to the moon’ which reflects the misguided belief that there is no ceiling to the share price and it will rise forever.

On 13 May 2024, Roaring Kitty returned to Twitter after a 3-year hiatus, posting nothing but a sketch of a man sitting up in a chair. This post was enough to send GME’s share price up 70% in a single morning, although it halved again by the end of the week.

Source: www.x.com/TheRoaringKitty , 13 May 2024

Bowmore Portfolios

A meme is an image, video or text that is humorous in nature. A meme stock is no different and should not be taken seriously. Needless to say, Bowmore portfolios have no exposure to these kinds of investments as they do not match our long-term buy and hold philosophy. They tend to have very weak fundamentals hence the hedge fund short interest and add unnecessary volatility to portfolios.

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