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What Is A 'Meme Stock'? The Viral Trading Sensation Explained
When it comes to the financial world, nothing is a sure bet. Depending on the economy, some stocks are known to do better than others, but even then it's a given that at any time a stock can just not perform well. But what if there was a stock that was determined to do well, with nothing holding it up except some goodwill, memes, and disbelief in financial logic? This is where meme stocks come from, and they don't even come close to making sense.
What Are Meme Stocks?
Meme stocks are understood to be stocks that people who make memes, primarily the Wallstreetbets subreddit in most cases, have taken a liking too. The biggest example of a meme stock is Gamestop, which had thousands of users investing in and then making memes about.
With this first meme stock, the logic was that the stock and company were healthier than the stock price reflected, and that by making memes about the company and getting more people to invest, the stock would continue to soar until a short squeeze occurred. For people who don't understand financial jargon, the following illustration is everything you need to understand the flurry of attention this first meme stock had.
Why Are Meme Stocks A Thing?
When it comes to a stock's price, the most important thing is the confidence level of the investors. If investors lose faith in the company, they sell the stock, and the price starts to go down. If the confidence is high, they'll keep buying more of the stock, raising the price. With meme stocks, a large amount of people, dedicated enough to spend time making memes about a stock, show 100% confidence in the stock, and refuse to sell.
This in turn can help a stock's price, but similarly, being labeled a "meme stock" can give the impression that the stock has no real worth besides meme makers liking it, hurting it's long-term viability in the market. This can be seen with every meme stock from that 2021-2022 period being significantly lower in value than back then, because the meme magic wore off.
Famous Meme Stocks
Gamestop was a famous meme stock, with AMC being a close second in command. Blackberry and Nokia had brief moments of meme potential, and a few weed stocks like Sundial Growers (SNDL) were part of the meme stock inflated pricing. A similar thing happened with Dogecoin, but when it comes to Cryptocurrencies it's an entirely different animal.
For the full details on the meme stock revolution, be sure to check out our entry on the meme here for even more information.
