RETAIL MEME STOCKS
What are they?
2023 APRIL ISSUE
Written by Terri Fisher
From the Desk of the Publisher
What is a Meme Stock? A meme stock refers to the shares of a company that have gained viral popularity due to heightened social sentiment. This social sentiment is usually heightened due to online and social media platforms. Social sentiment is a big factor in driving this popularity, as opposed to focusing on economic or corporate performance.
As said why AMC is a meme stock is because investing in AMC, the cinema chain, was a combination of nostalgia, a desire not to see the chain dismantled by bankruptcy, and an attempt to hold the wealthy accountable.
Investors in GameStop, an ailing video games retailer, are often young and inexperienced investors who thought that it would be fun to punish hedge funds and other investors that were betting against them that has fallen on hard times.
Last year, we have seen Bed Bath & Beyond as one of the so-called “meme stocks”. Warren Eisenberg, now 92 years old, and his co-founder Leonard Feinstein were forced off the board by activist investors in 2019 and Bed Bath & Beyond had one time a market value of $2.3 billion and employed 62,000 people. It is now worth less than $300 million and speedily heading toward bankruptcy. Obviously they still have fans who would bet against its outcome and make it also as one the meme stocks.
Learn about what Meme stocks are, how they work, and if they are ever a good investment.
“A Meme stock is a stock that gains popularity among retail investors through social media. The popularity of Meme stocks is generally based on internet memes shared among traders, on platforms such as Redditt. Investors in such stocks are often young and inexperienced investors.” Wikipedia
Let’s explain this a bit further. 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. These short term surges can often reverse course just as quickly, making meme stocks far more volatile than average stock market moves.
The work “meme” is from the ancient Greek word “Mimema” meaning imitation and is used to describe info that is imitated and often spread via pop culture on social media. Therefore, a meme stock is a shared investing idea imitated by other investors. As individual investors point out, given enough support from the masses, a climbing stock price (regardless of business fundamentals) can eventually equate to a stronger business. This comes from renewed customer interest, along with a rebounding share price or the raising of fresh cash through capital markets when the stock price rises. These viral stocks can be very risky since they rely on high interest from small investors to sustain the stock prices that go “through the roof”.
New meme stocks are being created all the time as individual investors look for new ways to beat the stock market. The two most famous meme stocks are video game retailer GAME STOP (NYSE:GME) and the world’s largest movie theater chain AMC (NYSE:AMC).
One of the top meme stocks right now is BED BATH & BEYOND (NASDAQ:BBBY) with a market cap of $153.7 million in February and is a brick-and-mortar retailer of home goods and accessories. Bed Bath & Beyond has seen better days. Already struggling in the 2010’s as the e-commerce onslaughts slowly eroded sales, the company was hit hard by the pandemic and lockdowns. A deeper dive into this company and others on the verge of Chapter 11 Bankruptcy protection can be found in another article in this month’s journal.
Some benefits of owning a meme stock include a chance for very high returns in a short period of time, an ownership stake in a new investment idea before the rest of the world gets wind of it, and lastly, a younger generation raised on social media has decades of prime investing ahead of them so the meme stock movement MIGHT be here to stay.
The drawbacks of investing in a meme stock includes the fact that the meme stock trend may not last forever especially as some traders return to work and spend more time away from home. Also, short-term stock prices are driven by supply and demand, so price moves are unpredictable and can lead to quick and painful losses. Some meme stocks don’t trade on any business fundamentals, and returns can suddenly reverse course, causing the company to lose its luster among individual investors.
Carpe Diem-let the buyer beware!
