What Is a Meme Stock?
A meme stock refers to the shares of a company that have gained a cult-like following online and through social media platforms. These online communities can go on to build hype around a stock through narratives and conversations elaborated in discussion threads on websites like Reddit and posts to followers on platforms like Twitter and Facebook.
Meme stock communities can thus greatly influence the prices of those shares through coordinated efforts to, for example, initiate short squeezes in heavily shorted names. As a result, meme stocks can become apparently overvalued relative to their fundamentals yet remain elevated for prolonged periods of time as members of the meme stock community keep their prices propped up.
Meme stock communities have also developed a glossary of informal slang and market terminology such as "diamond hands" (strong hands that will not sell even on dips), "tendies" (profits, jokingly referring to how many chicken tenders one can buy with them), and "to the moon" (anticipation of extremely above-average returns).
- Meme stocks are shares of companies around which online communities have formed to promote and build narratives.
- Meme stocks, in their present form, arose in the year 2020 out of the subreddit r/wallstreetbets.
- GameStop (GME) is widely regarded as the first meme stock, whose stock price rose as much as 100x over the course of several months as members of its meme community crafted a spectacular short squeeze.
- Meme stocks have generated their own slang and language used in online forums and social media.
Understanding Meme Stocks
A meme is an idea or some element of popular culture that spreads and multiplies across the minds of human beings. Memes gained increasing prevalence and relevance as the internet and social media grew, allowing 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."
With the internet, chat rooms and discussion boards devoted to investing and promoting stocks also arose. In the late 1990s and early 2000s, these sites helped promote and drive up the prices of so-called dotcom stocks—a bubble that famously burst in spectacular fashion.
Meme stocks, however, didn't truly emerge until the year 2020 via the Reddit forum r/wallstreetbets. Unlike its predecessors and other investing message boards, WallStreetBets became known for its unconventional and often irreverent tone. In this and other forums that have popped up since, users work together to identify target stocks and then promote them, while also putting their own money to work. Unlike online pump-and-dump schemes aimed at defrauding unwitting investors, the stock promotion of meme stocks largely involves buying and holding with "strong hands" even after the prices of such a stock spikes.
GameStop: The First Meme Stock
In August 2020, an activist investor named Ryan Cohen posted to the subreddit explaining why shares of brick-and-mortar video game retailer GameStop Corp. (GME) could be a good bet. This was picked up by an r/wallstreetbets user known as The Roaring Kitty (whose real name is Keith Gill), who posted a video that would become viral laying out the case for how GME stock could soar from $5 to $50 per share. In the video, he explained that the stock had among the highest short interest in the market, largely with short positions held by hedge funds—and that these funds would need to cover their positions in the event of a massive short squeeze, driving the stock much higher. The stock ended the year at around $20, a 4x increase from the price at the time of Cohen and Gill's posts.
Then, in January of 2021, the short squeeze that Roaring Kitty had suggested took place in earnest, with the price of GME shares exploding to nearly $500 amid a frenzy of short covering and panic buying. The main victims of the squeeze ended up being a handful of hedge funds, some of which were forced to shut down due to heavy losses. As a result, the meme stock concept adopted a David vs. Goliath or Robin Hood connotation of taking from the rich Wall Street elite and rewarding the small retail investor.
Meme stock activity was given a great boost from bored individuals stuck at home during COVID-19 lockdowns combined with zero-commission brokerage apps like Robinhood. In fact, Robinhood saw overwhelming trading volume in meme stocks at times, causing multiple trade delays, outages, and platform crashes. This led to user outrage along with regulatory fines and class action lawsuits.
Other Meme Stocks
While GameStop was the first successful meme stock, it was not the only one. Wallstreetbets users quickly identified other downtrodden stocks with heavy short interest to boost. These included AMC Entertainment Holdings, Inc. (AMC), the movie theater chain that saw flagging profits amid the COVID-19 pandemic, and Blackberry Limited (BB), the outmoded smartphone maker. Both stocks also saw their shares rapidly increase by multiples. Indeed, as these became recognized meme stocks, members of r/wallstreetbets and similar outlets began to acknowledge the humor (for the "lulz") of seeing such legacy companies emerge from the ashes in the stock market.
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 Corporation (KOSS), Vinco Ventures (BBIG), Support.com, and even the meme-stock enabler Robinhood Markets, Inc. (HOOD).
A Meme Stock Glossary
Meme stock communities have developed a specific lingo used in their posts online. Some of these terms include (along with emojis used to denote them online):
- Apes: 🦍 Members of the meme stock community. Some have attributed this to a meme related to the movie Rise of the Planet of the Apes, but others have suggested that the label comes from the banding together of "dumb apes" to take on the Wall Street elite.
- BTFD: An acronym for buy the f***ing dip. Buying the dips means going long a stock after its price has declined in the near term and is meant to be repeated after each such drawdown.
- Diamond hands: 💎🤲 This has come to mean holding onto a stock despite (even heavy) losses, confident that the price will soon increase.
- FOMO (fear of missing out): As in: if you don't catch the meme stock wave, you'll regret it.
- Hold the Line: a battle cry to encourage others to stand firm with diamond hands in the face of volatility.
- Paper Hands: 🧻🤲 This is a derogatory slur leveled against those that fail to maintain diamond hands. These are perceived as weak individuals without conviction who sell their shares too quickly.
- Stonks: An ironic misspelling of the word "stocks." This meme predates wallstreetbets and often depicts a crudely designed bald man in a suit staring blankly at an arrow pointing upwards in price.
- Tendies: 🔥🍗 Short for chicken tenders, tendies refer to profits made in meme stocks. There are several claims for why this fast-food item is used for collecting profits.
- To the moon: 🚀🌙 The idea that a stock will rise extraordinarily high, as if to the moon.
- YOLO (you only live once): As in: why not buy into a meme stock?
While meme stocks have been a boon to individual investors, day traders, and brokerage platforms, companies too have capitalized (quite literally) on the meme stock phenomenon. As a result of sky-high prices and persistent demand for shares among individual investors, AMC Theaters CEO Adam Aron took advantage of the elevated valuation and engaged in a series of secondary (follow-on) offerings in 2021, raising more than $1.5 billion in Q1 of that year from voracious meme stock buyers.
GameStop followed suit in 2021, raising nearly $1.7 billion via a secondary offering of 8.5 million additional shares at an average price of more than $200 per share.