For meme-stock investors who have faced a loss of capital, one way to try and strike a balance is with tax-loss harvesting — by selling another stock that saw capital gains around the same time. With this strategy, the two outcomes can cancel each other out at tax time and could benefit active stock traders. Both sides face uncertainty and rapid reversals typical of meme stock volatility. While risky, meme stocks can offer unique advantages for certain investors, especially those who understand how momentum trading works and can act quickly. However, if holding on to your hard-earned cash through long-term investments is what you have in mind, then it is probably best to steer clear of meme stocks, many financial advisors have told me.
Meme Stocks Explained: Examples, Advantages, and Risks
Online communities create a sense of unity and shared purpose, giving retail investors a platform to exchange insights and challenge institutional narratives. The meme stock era forced regulators and institutions to rethink crowd-driven market behavior.It highlighted the power of collective action and the importance of understanding online sentiment as a market force. Not everything about meme stocks is negative, there’s a reason investors are drawn to them. While most meme rallies start with a short squeeze, some evolve into a gamma squeeze, where options activity accelerates buying pressure.
The CurrencyTM, a publication from Empower, covers the latest financial news and views shaping how we live, work, and play. Nearly half of households (47%) are considering a turkey trade-off, as a 16-pound bird averages $31.68. Understanding what is a meme stock means recognizing that emotion, humor, and community can move billions of dollars.
- The type of stock that became a meme stock is also worth thinking about.
- This approach is less influenced by social media hype and more by data-driven analysis.
- As with earlier meme-stock episodes, trading interest in these names diminished quickly after the initial burst of activity.
You’ll also want to make sure that your decision to buy a meme stock isn’t driven by FOMO (fear of missing out). That’s a type of emotional buying that may cause you to make decisions you’ll regret. A short squeeze happens when many traders bet a stock will fall and are forced to buy it back as the price climbs. While it can be tempting to get in on a meme stock craze, your money is safer invested in other ways like through index funds.
Meme stock price surge and retreat
Meme stocks are actual stocks listed on exchanges and available for trade. Critics argue that their price performance and appeal have little to do with their fundamentals, however, and more to do with their entertainment value as speculative playthings much like casino games. Stocks are sold short on margin because they involve borrowed shares.
Where to put your money instead of meme stocks
Meme stocks are for thrill-seekers who oftentimes won’t profit from their investments in them. If you are such a person and can afford to risk losing money, then you may want to try investing in this type of stock. But if you want to invest more conservatively, steer clear of flash-in-the-pan meme stocks. Meme stocks lure investors with the promise of potentially big returns in little time. Bear in mind that meme stocks can be especially volatile, so plan accordingly and be prepared to continue investing more over time.
Investing in meme stocks and ETFs
Many viral rallies begin when traders Forex Trading for beginners notice high short interest and try to trigger a short squeeze. This dynamic shows how crowd-driven market behavior can quickly turn speculation into sharp price movements. Even when trades don’t go as planned, meme stocks can teach valuable lessons about volatility, timing, and emotional discipline. Observing these dynamics helps new investors understand how sentiment affects market prices.
- 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 plummets.
- Viral posts and memes create excitement, encouraging more people to buy, which pushes the stock price higher.
- Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
- Online communities can coordinate thousands of small trades that collectively move the price.
In this environment, attention, not analysis, has become the new currency. Meme stocks exist because the market has become as social as it is financial. Platforms like Reddit, TikTok, and X turned investing into a viral investing trend, where community excitement can move prices faster than news or data. As with other highly volatile investments (such as the related cryptocurrencies movement), there are drawbacks to betting on meme stocks. If you own a stock with these types of characteristics, it doesn’t mean that they will become part of the meme stock trade. However, it could mean those investments share features of a certain kind of trend trading, creating the potential for them to get caught up in irregular trading activity.
You should consult a qualified legal or tax professional regarding your specific situation. No part of this blog, nor the links contained therein is a solicitation or offer to sell securities. Third-party data is obtained from sources believed to be reliable; however, Empower cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose. Third-party links are provided solely as a convenience and do not imply an affiliation, endorsement or approval by Empower of the contents on such third-party websites. This article is based on current events, research, and developments at the time of publication, which may change over time.
Now in year four of the movement, new meme stocks are being created all the time as individual investors look for new ways to beat the stock market. Here are five to do some more digging on (beyond arguably the two most famous meme stocks — video game retailer GameStop (GME +0.14%) and the world’s largest movie theater chain AMC (AMC +0.20%). More traditional investors decry the lack of business fundamentals and strong performance to justify sharp surges in stock price. On the other hand, as individual investors point out, given enough support from the masses, a climbing stock price (regardless of current fundamentals) can eventually equate to a stronger business. This comes from renewed consumer interest, along with a rebounding share price or the raising of fresh cash through capital markets when the stock price rises. Meme stocks have been a boon to investors, day traders, and brokerage platforms but companies have also capitalized on the meme stock phenomenon.
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. Communities are built around them that promote the hype and elaborate on the original meme, inventing specific terms and symbols to accompany the stock.
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A meme stock is any publicly traded stock with a price performance that’s strongly influenced by activity on social media. Both prices and trading volumes of meme stocks may be exceptionally volatile, as the hype on platforms like Reddit (RDDT) can cause spikes in demand. The price performance of meme stocks is generally not based on changes in the underlying company’s fundamentals or financial performance. Meme stocks became a hot investment theme for day traders and retail investors early in 2021, resulting in short squeezes on hot stocks such as GameStop Corp. (GME) and AMC Entertainment Holdings, Inc. (AMC). These stocks are named after the virality of internet memes found on social media and saw online communities form around them to boost and hype their prospects even though meme company fundamentals remained questionable. Simply put, meme stocks skyrocket in price in a short period (often hours or days) because of a sudden surge in interest online or on social media and subsequent buying among small individual investors.