The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Some meme stocks did not fare as well as others, even with the occasional short squeeze. Other meme names have included, among others, Bed Bath & Beyond Inc. (BBBY), Koss Corp. (KOSS), Vinco Ventures (BBIG),, and even the meme stock enabler Robinhood Markets Inc. (HOOD). Meme stocks can be attractive simply because there’s room for money to be made if a stock goes viral.

  1. Even with meme stocks, the old adage, “Don’t put all your eggs in one basket,” still rings true.
  2. This means that there is a lot of short interest in the stock, or that a large proportion of the company’s outstanding shares have been sold short.
  3. Defining meme stocks is difficult, but generally they’re stocks that manage to gain a lot of attention from investors thanks largely to social media chatter.
  4. While an ETF such as MEME may be less risky than holding one singular stock, it’s still made up of high-risk investments that could just as easily plummet as skyrocket.
  5. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.

Also, keep in mind any restrictions a brokerage may place around meme stocks. At the peak of the GameStop trading frenzy, for example, online trading app Robinhood limited the number of shares investors could trade. While those limits were eventually eased, you may want to avoid a situation where your brokerage could cap your ability to trade. Investing trends come and go, and the rise of the meme stock is one of the latest to make the rounds. Defining meme stocks is difficult, but generally they’re stocks that manage to gain a lot of attention from investors thanks largely to social media chatter.

Looking to turn some of that extra free time into money, many people turned to the stock market and social media for ideas. Short selling is when somebody sells shares that they do not own, hoping to buy them back at a lower price. That seller must borrow shares from somebody who is long the stock in order to sell them.

He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.

Meme stocks: What are they and why you should be careful buying them

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Both companies also allow investor to buy fractional shares of stocks, so you can buy a piece of the action without getting in too deep. Experts generally suggest keeping individual stock picking limited to 5% to 10% of your overall investment portfolio. A broker like Vanguard is a good choice for passive investors who want to hold funds long-term as it doesn’t offer many tools for those who are more active traders or interested in short-term trading.

From there, the number of retail investors buying shares and call options snowballed, driving up the price. The price increase drove out some short sellers early on as it attracted various big-name investors and public figures, such as Elon Musk and venture capitalist Chamath Palihapitiya. As the price of the shorted stock rises, the short seller will begin to experience losses. These losses must be covered in a timely fashion, often prompted via margin calls, whereby the broker demands funds to make up for those paper losses.

A meme stock’s value is a result of its hype on social media and not necessarily the company’s performance. Though there is a potential for monumental gains, meme investors are more likely to experience potentially bigger losses as the stocks become overvalued and their price dramatically oanda fx data services blog plummets. GameStop’s stock price then surged due to a massive short squeeze affecting some major hedge funds that were short the stock and forced to sell to cut losses. As mentioned above, the stock price went from less than $5 a share to $325 (by January 2021) in less than six months.

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This social sentiment is usually due to activity online, particularly on social media platforms. These online communities can dedicate heavy research and resources toward a particular stock. Meme stocks often have heavier discourse and analysis in discussion threads on websites like Reddit and posts to followers on platforms like X (formerly Twitter) and Facebook.

Memes gained increasing prevalence and relevance as the internet and social media grew. They allow people to rapidly spread humorous, interesting, or sarcastic videos, images, or posts to others around the world. The rapid and multiplicative effect of sharing such posts could make them go viral. There were howls from investors, politicians, and business people who accused Robinhood of manipulating the market.

Memes began to take the form of humorous social media posts and viral videos with the advent of the internet. Meme stocks are so-named because ideas about them spread rapidly on social media and web forums. Meme stocks also see communities built around them that promote the hype and elaborate on the original meme, inventing specific terms and symbols to accompany the stock. The common thread among them, however, is that social media tends to fuel interest in them. That’s what happened with GameStop as everyday investors banded together to push the stock’s price “to the moon,” partly in defiance of hedge fund investors who had bet against the company.

What Investors Need to Know About Meme Stocks

Then on Jan. 28, the stock reached a high of $483, before dropping to close the day at $193.60. For those still itching to trade the next viral stock, invest only with money you can afford to lose. For an option with no expense ratio whatsoever, consider the Fidelity ZERO Large Cap Index (FNILX).

To understand meme stocks, let’s go back in time to January 2021 at the height of the COVID-19 pandemic when a high number of people were stuck at home. There is no doubt that it can be exciting to make money on day trading and to be a part of something bigger, such as in the case of the GameStop surge. And yet, studies have shown that even the most experienced of day traders lose money.

Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. Its (free cash flow was negative $1.8 billion in Q1 of 2023. Rivian needs to get itself to breakeven before its cash and short-term investment balance ($11.2 billion at the end of March 2023) dries up. Charles Schwab’s S&P 500 Index Fund (SWPPX) is a straightforward option with no investment minimum. Its expense ratio is 0.02%, meaning every $10,000 invested costs $2 annually.