Unless you’re a hardcore gamer, if someone called you in late 2020 and asked about GameStop Corp (NYSE:GME), you might have shrugged and walked away, but if they did today, the name would probably at least ring the bell. That’s because GameStop is largely recognized as the first in a whole new class of stocks that retail investors are constantly looking for: meme stocks.
While the entire meme stock movement started with Jim Stop (NYSE: GME) The impressive rise in (NYSE: GME) stock in early January 2021, which made retail investors millions of dollars and lose billions to some of the big Wall Street giants, is now clear that it was never about GameStop but more about the impact of the media Social networking on traders’ behaviour. Today, no social media has a greater impact on investing and the stock market than Reddit, the place where it all began.
This post shows how far this social media has come in terms of mobilizing investors and becoming a place where people come together to plan their next attack on Wall Street.
What are meme stocks?
Meme stock refers to any stock that has become popular among retail investors thanks to social media. In other words, they are stocks whose prices usually go up because they spread so fast, and memes are also very popular on various social media. While the most powerful social media driving markets today are Reddit and the r/wallstreetbets subreddit, in particular, other platforms such as Twitter Inc (NYSE:TWTR) and Meta Platforms Inc (NASDAQ:FB) also contribute to making these stocks popular, Usually among young and inexperienced investors.
The first stock meme was GameStop, which exploded in January 2021 when thousands of investors bought thousands of shares through the Robinhood app. Other stocks followed, including AMC Entertainment Holdings Inc (NYSE: AMC). Today, subreddit r/wallstreetbets is one of the best places to go to learn how to buy all of the major cryptocurrencies like Bitcoin (CRYPTO: BTC), as well as smaller coins such as Dogecoin (CRYPTO: DOGE) and Shiba Inu (CRYPTO: SHIB).
Meme stocks are part of the consequences of the COVID-19 pandemic
Most people credit meme stock presence to the COVID-19 lockdowns that have sent many workers home with nothing better to do with their time and money than to start investing in hopes of improving their financial situation. A second indirect consequence of these lockdown measures has been that all major sporting events have been canceled or postponed, which has had a huge impact on the online sports betting community. Members of this community were very excited about finding a new way to gamble, and investing in high-risk, high-yielding stocks like emerging meme stocks was the perfect solution for them.
Meme Stocks May Be Here To Stay
Few serious, self-respecting investors take MIM stocks seriously and consider them good long-term investments. Although it can bring incredible profits, it is unpredictable and volatile at best and a great example of applying the bigger fool theory at its worst.
In this sense, the price hike is usually FOMO-driven, although other positive feedback loops that take advantage of short sellers and other types of investors also play a big role in this. This means that there is no real increase in the underlying value of the company, which in turn implies that stock prices tend to fall shortly after rising.
Negatives aside, with a younger generation of investors becoming connected and letting social media direct their actions, the meme stock movement appears to be here to stay, with Reddit at the fore.
But how did this movement really originate? Like I said before, it all started with GameStop.
GameStop Saga Explained
The first real meme stock was GameStop video game store. Some Redditors and Twitterati have started talking about how stimulating a company’s stock increase is forcing short sellers to sell their positions at a loss, leading to huge profits. They came up with the idea in 2019, but it wasn’t until the summer of 2020 when many started taking it seriously in the r/wallstreetbets subreddit.
In early 2021, a change in company management stimulated interest, and Redditors began buying up stock. Stocks caught fire and began a chaotic journey of increased volatility, earning millions of dollars for Redditor investors and losing billions to some of the big names on Wall Street. The biggest losers were hedge funds Melvin Capital and Citron Research, which reported losses of more than 50% in just two days, totaling over $6 billion.
Reddit has been the information source of choice for this new type of retail investor ever since, making it a force to be reckoned with by traditional investment firms and Wall Street in general.
Reddit’s current impact on investing and the stock market
Back in January, when the Reddit effect kicked in, the group of traders and investors who drove the GameStop phenomenon was very small, and in some cases, first-time investors with some surplus cash in their pockets. Most of them happen to be in large metropolitan areas, such as New York City and London.
While the community at the time was by no means small, today it has 11.3 million members or is “degenerate,” which is how they refer to themselves. There are always hundreds of thousands of trainees online at any given time, making it one of the most important trading communities in the world.
Social media like Reddit is no longer just for young investors
From early January to today, more investors at risk have joined the community in hopes of taking another bold move against Wall Street. Initially, the group was mostly made up of millennials and Gen Zs. However, an Investing.com survey of 1,302 US investors showed that more than 20% of investors today look to Reddit for investment advice and that more than 17% of all investors aged 40 and over have also used Reddit for leadership. their investments. financial decisions.
While Reddit is undoubtedly the king in this arena, the same has happened on other social media such as Twitter, Stocktwits, and Meta Platforms Inc. In fact, the same survey showed that more than half of investors use some form of social media to decide how to invest their money.
Meme cryptocurrencies are also a ‘thing’
In the same way that many investors got together to blow up GameStop and other meme stocks, others are now applying the same principle to crypto. Discussion forums pop up on social media like Reddit where members discuss their next move on micro-cryptocurrencies, then use crypto exchanges to buy those cryptocurrencies and raise their prices.
For some, these new trends signal the democratization of investment, while for others, they represent a risk distorting the market and threatening the status quo.
Bottom line: Is Reddit a real threat to Wall Street?
A small percentage of investors believe that social media platforms such as Reddit and Twitter should limit the ability to regulate retail investors, arguing that they are dangerous to the economy. On top of that, they say trading platforms like Robinhood – where most of the trades that have pushed GameStop shares to the ceiling were made – should limit trading to retail investors to avoid this happening again.
On the other hand, a much larger part of the population believes that the government should protect retail investors from Wall Street, noting the inequality between the profits of hedge fund managers and the people who manage their money. It remains to be seen if this will really change the game on Wall Street in the future. Meanwhile, Reddit has proven what people can achieve if they work together and that no force is too great for a large enough group of people to outgrow.