These things being known, it’s important to understand what you’re investing in, so let’s dive a little bit deeper, and get a good overview of what meme stocks truly are.
A brief history lesson on memes and stocks
The modern word meme was purportedly first used in 1976 by a biologist. That biologist was Richard Dawkins, who referenced the term in his book titled “The Selfish Gene” by saying “Just as genes propagate themselves in the gene pool by leaping from body to body via sperms or eggs, so memes propagate themselves in the meme pool by leaping from brain to brain.”
The meaning of the word as we know it has since taken on a life of its own, and evolved just as a language naturally would. After truly coming to fruition during the dawn of the internet era after about 2005, its use cases have become multifaceted, and it requires context to truly comprehend.
Stocks, on the other hand, have been around in some form or another for, well, a long time. Although the first official publicly traded stock was that of the Dutch East India Company on the Amsterdam Stock Exchange back in 1602, the concept of owning “shares” of something has been around much longer than its formal manifestation.
Combining the internet and the markets to get meme stocks
So, where did the idea of meme stocks come from? It would be a mistake to attribute their conception to just one source, but there’s a single event that served as the undeniable catalyst that ultimately sparked this trend.
That event was the Gamestop pop, where the share price rose from just $18.84 on December 31st 2020, to a peak of $325 almost a month later.
What makes this a meme stock type event?
The movement was conceived as a bit of a joke. Although it was partially fundamental with the initial attractor being an attempt to prey on a high short-interest equity, it quickly became a retail trading frenzy, where everyone wanted to hop on the trend for the fun of it, because the idea of driving the price of a company some analysts view as outdated to the moon is just kind of funny. Our younger generations have proven not everything has to be taken so seriously.
This was just the beginning, though. Both in the midst of and following the hype surrounding Gamestop, investors quickly found other meme-like plays as well. Stocks like $AMC, $NAKD, $NOK, $KOSS and more all caught some sympathy funds overflowing from investors looking for a profit.
Since their Q1 inception, there has been and will likely continue to be more meme stocks that proliferate the market, and reach trending status on little to no fundamental merit whatsoever. That can either be scary, or exciting, depending on how you view it.
How to invest in meme stocks, if at all.
Buying into meme stocks is not for everyone, and certainly not for the faint-hearted or anyone who doesn’t enjoy the thrill of a bit of risk. They’re often very volatile equities to hold by the time they’ve reached the unofficial “meme stock” status, and that’s a two-way street that can easily go south if not managed properly.
However, if you do desire to venture into the world of meme investing, it’s best to keep a few of these boring yet true things in mind.
- Get in the play early, if you can.
- Don’t put in more than you can afford to lose.
- Have a defined plan for both entry and exit points.
- Take profits, set stop losses, and ultimately manage your risk.
Whether you are into meme stocks or not, the investing game could be a risky one. Luckily, though, there’s a place you can find the right information and strategies that might apply to your individual portfolio and even reduce your risk level. Download Front to get your Front Score, an AI-powered algorithm based on diversification, and start implementing what works for you.