INVESTING EXPLAINED: What you need to know about meme stocks – with a cult following thanks to social media

In this series, we bust the jargon and explain a popular investing term or theme. Here it’s meme stocks.

Why do I suspect that these may not be the stocks for me?

You’d be right – if you are cautious. This is hazardous territory for investors.

Meme stocks are shares that gain a cult following thanks to social media platforms like Reddit. Such stocks may have little intrinsic value but this does not stop their prices soaring or ‘going to the moon’ as meme-stock jargon would put it.

Among the fan base, there is special rejoicing if this hits Wall Street professionals who have been ‘shorting’ the stock, calculating its price is set to tumble. A meme is an image, or piece of information that spreads rapidly across the internet.

When did all this start?: Meme stock madness hit the headlines in January 2021 when Youtuber Roaring Kitty started posting about Gamestop, a declining US gaming retailer

When did all this start?

Meme stock madness hit the headlines in January 2021 when Youtuber Roaring Kitty – aka Deep F***ing Value, aka Keith Gill – started posting about Gamestop, a declining US gaming retailer.

At the beginning of the month the shares stood at $17.25. By the end of the month, they had soared to $500.

This was thanks to lockdown ennui, the interest in the Reddit Wallstreetbets stream, cash from government stimulus cheques and the ability to trade on the Robin Hood app.

This sounds like a film script?

Funny you say that because the Gamestop story, which captured worldwide attention, was actually turned into a film, Dumb Money. It is also chronicled in a Netflix documentary, Eat The Rich.

What were the other big meme stocks of 2021?

AMC Entertainment, a cinema group whose shares rose by 1,134 per cent in 2021 to $147.3. Its current price is $4.55. Blackberry, the software group, followed a similar trajectory, ‘going to the moon’ in 2021, reaching $14, but falling back to $2.45.

Investors with names like ‘Iknowthecodings’ and ‘WSBGod’ are said to have turned small stakes into fortunes but thousands did not get the timing right and so lost out – heavily.

Why are we reading this now?

Because Roaring Kitty has returned to the scene this month. Following a post on the X/Twitter platform, Gamestop shares leapt from $17 to $78.

The shares may now have returned to $18, but the excitement seems to have been reignited.

A lucky few may make money, but only do so by taking on huge risks. The meme stock crowd tend to be less vocal about their losses than their profits or ‘tendies’. This is slang for ‘chicken tenders’.

Are there any other meme stocks?

The list includes Donald Trump’s Trump Media and Technology, which operates the social media platform Truth Social – the shares are up by 150pc this year.

Other notable names are: Hims & Hers Health, which is selling $199-a-month weight loss drug injections, and Robinhood Markets, the Robin Hood app firm.

Meme stock language seems colourful – any other examples?

BTFD means ‘Buy the f***ing dip’, that is, buy when the share price is low.

Diamond hands indicates an investor’s willingness to hold a stock, regardless of losses. Paper hands indicate a willingness to sell.