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“Simple just don’t be poor”
– a Reddit user, taken out of context
– Elon Musk
The rise of retail investing together with social media have changed the way we see financial markets. A single piece of news always had the power to make or break businesses, but now a single tweet or post on Reddit can define a whole course of events, like hedge funds losing billions in a month and individual investors making fortunes.
What are meme stocks? In this article we’ll talk about the meme stock definition, how stocks become meme stocks and whether you should invest in them.
We’ll also look at some meme stocks to watch and potentially invest in during 2022.
What are Meme Stocks?
What is a meme stock? It’s a stock whose price rose rapidly due to the activity of retail investors on social media and their collective intelligence. And then, of course, people like Elon Musk.
The Reddit community r/WallStreetBets was mainly responsible for launching the GameStop bonanza, but it was Robinhood that allowed mass retail investing in the first place by introducing commission-free trading from $1 per transaction and with no deposit.
Brokers used to only allow buying whole shares. While one Ford share costs under 20 bucks, one Amazon share is $3,000. But now anyone who has a dollar and a cell phone in the US can buy a fraction of any share.
Robinhood’s move encouraged other brokers to lower the bar for retail investors as well.
The Case of GameStop
The craze around GameStop started when a certain Roaring Kitty figured out that a hedge fund had placed a large short position on the stock, whose price had been falling since November 2015 and went up from around $4 to around $20 during autumn 2020. The hedge fund saw that as a great opportunity to short because they believed the stock would keep falling.
Shorting a stock means borrowing shares to open a position hoping to buy at a lower price to make a profit.
The hedge fund wanted to profit from the falling price, but the Reddit sub r/WallStreetBets had other ideas. Retail investors started buying GameStop shares, which made the price skyrocket.
The hedge fund had borrowed the stock for around $20 per share expecting to buy it lower and return at a later date for profit. But the price for GME started growing quickly, peaking at $483 within days, on January 26, 2021.
That’s when the ‘technical glitch’ happened that made the Buy button mysteriously disappear on Robinhood. Clearly, the hedge fund was a little unhappy that ordinary people dared to try to play the market like they do themselves on a daily basis. As a result, Robinhood attracted a lot of criticism because they seemed to act in the interests of the big players.
Other Meme Stock OGs
Other stocks also saw sudden growth around January 26 on a smaller scale, including AMC, Blackberry (BB), and Nokia (NOK).
The prices kept fluctuating over the course of 2021, going up and down several times. In fact, this pattern has continued into 2022 and all of these stocks are trading well above their pre-2021 levels.
Why Exactly Meme Stock?
Why are meme stocks called meme stocks? Because they are very similar to the way memes appear and spread. A meme appears when someone posts something and other people pick up on it and start to make their versions.
What stocks are meme stocks? It really doesn’t matter. In a way, all popular stocks are meme stocks. Companies are brands first and brands sell stories. Apple would never have reached a $3 trillion market cap if the company wasn’t considered cool.
Now let’s look at some of the best meme stocks to watch in 2022 or companies that could become meme stocks.
Best Meme Stocks to Watch in 2022
So what are some meme stocks?
The thing is, just like it’s impossible to predict the next popular meme, it’s impossible to predict what the next big meme stock is going to be.
But let’s look at some current meme stocks that have the potential to give fruity returns whenever the markets go up or down.
Now let’s look at some meme stock examples.
GameStop and the OGs
Even though the original meme stock craze was a year ago, GameStop is still definitely a meme stock to watch for those interested in meme stocks. The same applies to the other top meme stocks like GME, Blackberry, AMC and Nokia, all of which are still trading above their pre-2021 levels. It’s great to keep an eye on these for those interested in volatile trades and to study how the meme stock market works.
You probably won’t get 2000% on your investment in a month, but these stocks go through big price fluctuations almost every month. If you like playing, this game is not over.
After a successful Affirm IPO, the fintech company picked up 50% in the first month. After that it came back down. After that it went up 140% in three months in Q4 when the S&P went up 10%. After that it fell down even lower. Now it seems to be going back up. Hopefully you see the pattern here? Look at the graph, it’s fun.
Not investment advice.
The big data analytics company Palantir went public in September 2020, and quickly established itself as one of the more promising meme stocks to buy, having gone up from $9.50 to $39 within the first 4 months on the market. However, after a big sell-off at the beginning of 2021, the stock price has been falling and now trades at $13 (3/29/22). Considering Palantir’s partnerships with government organizations and the fact that the company can offer important solutions to important problems, some analysts predict a good future for the company and think the stock has hit the bottom and is on its way to a great recovery, which would make it a value stock as well as a meme stock.
This is a stock that has a bunch of strong buy and strong sell ratings, so not a conservative investment by any stretch. In a way it’s an investment meme that made Elon Musk the richest man in the world (at least on good days). It will take years for the business itself to justify the stock’s price, but guess what? We wouldn’t be entirely surprised if the price grew to $2,000 this year, because so many people buy into the whole Tesla thing.
Crypto meme coins actually existed long before the concept of meme stocks became so popular. Even though Dogecoin has been around since 2013, the massive price growth came about just a month before meme stocks happened, when Elon Musk started tweeting about Doge and its price skyrocketed, growing almost 15,000% in total between the end of December 2020 and the beginning of May 2021. Then there’s the Shiba Inu thing. Same thing, same suspects.
Sorry if that’s a bit vague, but that’s the nature of it. The only way to find out about the next big thing is to be in the know by being part of the meme stock community on Twitter, Reddit, crypto Telegram channels and all that stuff. Don’t be shy to ask investors you know or use Gainy to check out some hot stocks around your interests.
What Risks Can Be Associated With Meme Stocks?
There are some pros and cons of meme stocks. The benefits are obvious — you can get +400% on your investment overnight, the other common characteristics being that they are arguably all good undervalued companies that can leverage the additional money invested into the company to grow. But obviously there are some risks.
It’s like gambling
Ok, let’s face it, meme stocks are more speculation rather than investment. If you really must trade meme stocks, only use money you can afford to lose. It’s best not to go over 10% of your overall portfolio. It’s better to think of it as a game and be prepared to lose the whole investment rather than being disappointed. Please don’t use the money you need for your basic expenses and don’t use your credit card to buy meme stocks.
They are short term
Meme stocks are not investments in the Warren Buffett sense, who proved many times that the real value comes from buying stocks of great companies and waiting many years or forever.
For stocks trading purely on hype, the price changes can be unpredictable and it’s easy to lose money very quickly. They are more for those seeking the thrill of a short-term return.
This makes it a highly speculative thing to buy meme stocks, meaning it’s more like trading rather than investing. And with trading it’s important to set goals for when to sell, whether the price goes up or down.
You’re likely to be late
Unless you hang out on Reddit and Twitter and follow some of the guys in this space, if you’re gonna invest in these stocks because everyone else is doing it, you’re likely to be late to the party. Like if your mom is asking you to buy GameStop shares for her.
Elon Musk might change his mind
This sounds like a joke but it’s not a joke. If Elon Musk brags that he sold a bunch of Schmoozie Tokens, it’s going down. This also applies to other social media personalities trading meme stocks and talking about it.
The big players that have great influence over the market may have their own agenda whenever they make any kind of announcement, so keep that in mind when making decisions about your own investments.
A lot of meme stocks and coins point to one man. Elon Musk wouldn’t have become the richest person in the world if not for his charismatic personality, and Tesla stock wouldn’t have reached $1000 considering its price-to-earnings ratio of 200.
Not everyone should buy meme stocks, it takes more of an active trader’s mindset…But they are a great illustration of how stock market psychology works in general, which can help us become better investors. Without risking a big part of the portfolio, meme stock trading can be a great way to learn and to possibly get big stock gains.
Investing in meme stocks is fun because it makes people feel like they are a part of a community, especially when it means going against the system together.
What does meme stock mean?
It’s a stock that became popular because of discussions about it on social media like Reddit, Twitter, and because of [market manipulators] popular investors like Elon Musk. Any stock can become a meme stock, meaning it just takes someone with enough influence to start a trend.
What are some popular meme stocks?
The original meme stock GameStop still goes through big price chances even over a year after the initial hype started, same goes for other stocks like AMC, Blackberry and Nokia. Tesla can be called a meme stock, as well as some recent IPOs like Palantir and Affirm.
Should you buy meme stocks?
Buying meme stocks is more short-term than buying Coca-Cola or American Electrical Power. It’s best not to go over 10% of your overall budget, but meme stocks can be a great way to diversify your portfolio. In that way they are similar to crypto.
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