Meme stocks refer to stocks that are popular among retail investors on the Internet or social platforms. These stocks grow extremely fast and beyond expectations, often showing "overnight surges". Well-known Meme stocks include GameStop, Twitter, Facebook, etc. The following is a list of popular Meme stocks.

 

The life cycle of a Meme stock

The life cycle of a Meme stock is full of drama. Stocks that can become Meme stocks generally have the following three characteristics: the company's fundamentals are weakening and the stock price is in a slump; hedge funds are frantically shorting them; and there are signs of a reversal of adversity recently. The Internet and social media are important drivers of their success in becoming Meme stocks. When such stocks become hot topics through social networks, they will attract retail investors to buy them frantically, driving the stock price to soar sharply in a short period of time. At this time, Meme stocks are born.

The stock price of Meme stocks fluctuates quite violently. Retail investors continue to push up their stock prices, while hedge funds keep shorting them, causing Meme stocks to soar and plummet in a short period of time. Traditional stocks can rise by 30% to 50% in a year, while MEME stocks can achieve the same increase in a few hours or days. However, these stocks lack business fundamentals, performance or prospects and are seriously overvalued stocks.

• Germination stage: This stage is the starting point of MEME stocks. Some forward-looking investors have discovered potential value or undervalued opportunities and started buying stocks. At this time, the stock price may not be obvious, but there are already some positive signals.
• Mid-term stage: With the initial rise in stock prices, more investors begin to notice the stock and trading volume increases. This stage is the acceleration period of stock price increases, and the market begins to form a consensus that the stock has the potential to rise further.
• Late stage: At this time, the stock has been widely circulated on social media, attracting a large number of retail investors. The "FOMO" (Fear of Missing Out) sentiment leads to more investors pouring into the market, pushing the stock price up further.
• Profit stage: As the stock price reaches a high point, the earliest investors who bought in begin to sell to lock in profits. This selling behavior will gradually affect other investors, leading to panic selling in the market and the stock price begins to fall back. Although there may be a short-term rebound, the stock price will eventually return to a level that is more in line with its fundamental value.
  

Case Analysis: Take GameStop as an example

In August 2020, YouTube celebrity RoaringKitty said in a video that GameStop's stock price could rise from $5 to $50. He said that he saw GameStop's stock being shorted wildly. In this case, once the stock price soars, it may trigger the so-called "short squeeze", causing the stock price to continue to rise.

This attracted the attention of retail investors on the Reddit forum to GameStop. Soon after, Ryan Cohen joined the GameStop board of directors, which made retail investors more convinced that the stock was undervalued and bought in.

In January 2021, driven by retail investors, GameStop's stock price soared from around $20 to a high of nearly $500 in just a few weeks, dealing a severe blow to short sellers.

However, the crazy rise in GameStop's stock price caused the stock price to seriously exceed the company's true value. As a result, only one month later, the stock price plummeted from $500 to $50.

 

High returns mean high risks: Risks of trading meme stocks

Meme stock prices are usually out of touch with company fundamentals, making it difficult for investors to accurately predict their future market performance. In addition, the short-term price fluctuations of meme stocks are mainly affected by market supply and demand, which makes it difficult to predict the short-term trend of stock prices. At the same time, the price of meme stocks is easily affected by emotions on social media. Once retail investors shift their focus from a meme stock to other stocks, the meme stock may quickly experience a sharp drop in price.

 

Follow us

Find us on Twitter, Instagram, YouTube, and TikTok for frequent updates on all things investing.

Have a financial topic you would like to discuss? Head over to the uSMART Community to share your thoughts and insights about the market! Click the picture below to download and explore uSMART app！

 

 

 

Important Notice and Disclaimer:

This document is prepared by uSMART. This document is not intended for or directed at persons under local laws or regulations that prohibit the distribution or publication of this document. This document is provided to the recipient only, and the information, materials, or analytical tools contained herein are provided to the recipient for informational and reference purposes only. This document should not be construed in any jurisdiction as constituting an offer, solicitation, recommendation, inducement, endorsement, opinion, or guarantee to purchase, sell, or trade any securities, financial products, or instruments or to engage in any investment or any transaction of any kind, nor is there any intention to solicit or invite the purchase or sale of any securities.

Investment involves risks. Before making investment decisions, the recipient should carefully read relevant offering documents to obtain further information, including risk factors. Past performance data does not imply similar future performance. Investments in the asset categories mentioned in this document may not be suitable for all recipients. This document does not consider the individual objectives, financial situation, or needs of any specific person who may access this document. Before engaging in any transactions, the recipient should take reasonable actions based on personal objectives and circumstances to ensure a clear understanding of the transaction and independently evaluate the suitability of the transaction, including assessing the potential risks and returns of the transaction, and if necessary, seek independent professional advice. The information and opinions contained in this document reflect the judgment of uSMART as of its publication date, and no further notice will be given in the event of changes. Neither we or our respective directors, officers or employees will be responsible for any losses or damages which any person may suffer or incur as a result of relying upon anything stated or omitted from this article.

The value of these securities and the income from them may fall or rise. Your investment is subject to investment risk, including loss of income and capital invested. Past performance figures as well as any projection or forecast used in this article is not indicative of its future performance.

This advertisement has not been reviewed by the Monetary Authority of Singapore.