Meme stock

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A meme stock is a stock that gains popularity among retail investors through social media. [1] [2] [3] The popularity of meme stocks is generally based on internet memes shared among traders, [4] on platforms such as Reddit's r/wallstreetbets. [5] Investors in such stocks are often young and inexperienced investors. [6] As a result of their popularity, meme stocks often trade at prices that are above their estimated value –as based on fundamental analysis  – [7] [8] and are known for being extremely speculative and volatile. [9] [10] [11]

Contents

A GameStop store facade in Queens, New York City. Fresh Meadows Place td (2022-09-13) 28 - GameStop.jpg
A GameStop store facade in Queens, New York City.

History

Interest in meme stocks started in 2020, [4] in what the U.S. Securities and Exchange Commission has called a "meme stock phenomenon". [12] The stock of American video game retailer GameStop has been one of the most popular meme stocks, [13] [14] with mass purchases of the stock leading to a short squeeze on GameStop in early 2021. [5] The stock of entertainment company AMC is also cited as a prominent example. [15] [14] Other examples include the stocks of Bed, Bath & Beyond, National Beverage, and Koss. [16] The distinction between a meme stock and a non-meme stock is not always clear; for example, Tesla has some of the characteristics of a meme stock: a high price-earnings ratio and being frequently discussed by amateur retail traders on social media, yet some professional analysts do not consider it to be overpriced. [17]

Interest in meme stocks is associated with trading platform Robinhood, which pioneered [18] commission-free trading. [19] According to TheNew York Times, "Robinhood was the tool of choice for traders in the original meme stocks". [20]

Some meme stocks have often become popular among retail investors after being targeted by short-selling professional investors, such as hedge funds, [21] [22] [23] with participants having the explicit aim of causing losses among those firms. [21] [23] News coverage has described the choice to purchase such stocks as an act of rebellion intended to humble short-selling professional investors. [24]

According to an SEC report, while some hedge funds had big losses, the meme stocks phenomenon did not widely impact hedge funds. [25] [26] The SEC staff report also stated, "some investors that had been invested in the target stocks prior to the market events benefitted unexpectedly from the price rises, while others, including quantitative and high-frequency hedge funds, joined the market rally to trade profitably." [26] By June 2021, according to Financial Times , some hedge funds were systematically analyzing meme stocks. [27]

On July 5, 2024 Reddit users speculated that Keith Gill, who was previously involved in the GameStop meme stock fad, was about to invest in headphone maker Koss Corporation around July 4th (US Independence Day) after a May post by him in which a microphone emoji appeared with a US flag on the backdrop. As a result of the speculation, a single Koss share raised to $18,50 before ending worth $13,35 in that day's session. [28]

See also

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Keith Patrick Gill is an American financial marketer and educator and individual investor known for his posts on the subreddits r/wallstreetbets and r/SuperStonk. His analyses of GameStop stock and details of his resulting investment gains—posted on Reddit under the username DeepFuckingValue (DFV) and on YouTube and Twitter as Roaring Kitty, were cited as a driving factor in the GameStop short squeeze of January 2021, and as a spark for the subsequent trading frenzy in retail stocks. The rising stock value allowed Gill to turn an initial US$53,000 investment into $50 million by January 2021. Between 2021–2024, Gill kept a low profile but continued to increase his GameStop ownership. As of June 2024, Gill owns 9 million shares of GameStop valued at approximately $250 million, making him one of the company’s top five largest shareholders.

In January 2021, a short squeeze of the stock of the American video game retailer GameStop and other securities took place, causing major financial consequences for certain hedge funds and large losses for short sellers. Approximately 140 percent of GameStop's public float had been sold short, and the rush to buy shares to cover those positions as the price rose caused it to rise even further. The short squeeze was initially and primarily triggered by users of the subreddit r/wallstreetbets, an Internet forum on the social news website Reddit, although a number of hedge funds also participated. At its height, on January 28, the short squeeze caused the retailer's stock price to reach a pre-market value of over US$500 per share, nearly 30 times the $17.25 valuation at the beginning of the month. The price of many other heavily shorted securities and cryptocurrencies also increased.

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References

  1. ↑ Griffith, Erin (2021-06-23). "No End to Whiplash in Meme Stocks, Crypto and More". The New York Times. ISSN   0362-4331. Archived from the original on 2021-10-21. Retrieved 2021-10-20.
  2. ↑ Langley, Karen (2021-06-04). "AMC Leads Meme Stocks on a Wild Ride". Wall Street Journal. ISSN   0099-9660. Archived from the original on 2021-10-21. Retrieved 2021-10-20.
  3. ↑ U.S. Securities and Exchange Commission (October 14, 2021). Staff Report on Equity and Options Market Structure Conditions in Early 2021 (PDF). p. 15. Archived (PDF) from the original on October 30, 2021. Retrieved October 20, 2021.{{cite book}}: CS1 maint: date and year (link)
  4. 1 2 "Year of the Meme Stock: Hertz, Kodak Top List of 2020 Highlights". Bloomberg.com. 2020-12-26. Archived from the original on 2021-10-23. Retrieved 2021-10-20.
  5. 1 2 Darbyshire, Madison; Oliver, Joshua (2021-05-25). "Reddit forum discussions swing from meme stocks to cryptocurrencies". Financial Times. Archived from the original on 2021-10-23. Retrieved 2021-10-20.
  6. ↑ "Are "meme stocks" harmless fun, or a threat to the financial old guard?". The Economist. 2021-07-06. ISSN   0013-0613. Archived from the original on 2021-10-23. Retrieved 2021-10-20.
  7. ↑ Chung, Matt Wirz and Juliet (2021-06-11). "WSJ News Exclusive | AMC Bet by Hedge Fund Unravels Thanks to Meme-Stock Traders". Wall Street Journal. ISSN   0099-9660. Archived from the original on 2021-10-22. Retrieved 2021-10-20.
  8. ↑ Alloway, Tracy (27 January 2021). "How 'Flows Before Pros' Is Disrupting Stock Markets". Bloomberg. Archived from the original on 23 October 2021. Retrieved 20 October 2021.
  9. ↑ "The Meme Stocks Keep Coming". Bloomberg. 9 June 2021. Archived from the original on 30 October 2021. Retrieved 30 October 2021.
  10. ↑ Adamczyk, Alicia (9 June 2021). "Dogecoin? Meme stocks? Why 'boring' investments are still your best bet". CNBC. Archived from the original on 30 October 2021. Retrieved 30 October 2021.
  11. ↑ Li, Yun (2021-05-26). "Meme stocks GameStop, AMC are popping again as speculative trading ramps back up". CNBC. Archived from the original on 2021-11-01. Retrieved 2021-10-31.
  12. ↑ U.S. Securities and Exchange Commission 2021, pp. 15–16.
  13. ↑ Griffith, Erin (2021-03-13). "From Crypto Art to Trading Cards, Investment Manias Abound". The New York Times. ISSN   0362-4331. Archived from the original on 2021-10-20. Retrieved 2021-10-20.
  14. 1 2 Langley, Karen (2021-06-04). "AMC Leads Meme Stocks on a Wild Ride". Wall Street Journal. ISSN   0099-9660. Archived from the original on 2021-10-21. Retrieved 2021-10-20.
  15. ↑ "Meme Stocks Aren't New, But Their Biggest Fans Are". Bloomberg. 2021-06-16. Archived from the original on 2021-10-23. Retrieved 2021-10-20.
  16. ↑ U.S. Securities and Exchange Commission 2021, p. 21.
  17. ↑ Root, Al. "What Makes Tesla Worth $900 Billion? How One Analyst Gets There". www.barrons.com. Archived from the original on 2021-11-03. Retrieved 2021-10-29.
  18. ↑ Egan, Matt (2019-12-13). "This app completely disrupted the trading industry". CNN. Retrieved 2023-05-13.
  19. ↑ Darbyshire, Madison; Platt, Eric (2021-08-04). "Robinhood soars after retail traders flock to shares". Financial Times. Archived from the original on 2021-11-03. Retrieved 2021-10-20.
  20. ↑ Livni, Ephrat (2021-08-07). "Robinhood's Unfinished Business". The New York Times. ISSN   0362-4331. Archived from the original on 2021-10-22. Retrieved 2021-10-20.
  21. 1 2 Chung, Juliet (10 July 2021). "The Meme Stock Rally Hurt Melvin and Maplelane. It Hasn't Gotten Easier Since". Wall Street Journal. Archived from the original on 21 October 2021. Retrieved 21 October 2021.
  22. ↑ Phillips, Matt (3 June 2021). "AMC Cashes In on Meme Stock Mania, Raising $587 Million". The New York Times. Archived from the original on 21 October 2021. Retrieved 21 October 2021.
  23. 1 2 Lynch, David J.; Shaban, Hamza; Denham, Hannah; Newmyer, Tory (January 27, 2021). "GameStop, AMC shares surge after Reddit users lead chaotic revolt against big Wall Street funds". The Washington Post. Archived from the original on 17 September 2021. Retrieved 21 October 2021.
  24. ↑ U.S. Securities and Exchange Commission 2021, p. 3 and 25.
  25. ↑ Carlson, Anna (2021-10-18). "SEC says "Meme-Stock" surge earlier this year didn't broadly affect hedge funds". Newsweek. Archived from the original on 2021-10-29. Retrieved 2021-10-29.
  26. 1 2 U.S. Securities and Exchange Commission 2021, p. 22.
  27. ↑ Fletcher, Laurence; Darbyshire, Madison (2021-06-25). "Hedge funds rethink tactics after $12bn hit from meme stock army". Financial Times. Archived from the original on 2021-10-29. Retrieved 2021-10-29.
  28. ↑ McGee, Suzanne (2024-07-05). "Meme stock speculation propels Koss shares 25% higher on Friday". Reuters. Archived from the original on 2024-07-06. Retrieved 2024-07-06.
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