Meme stocks: What are they and why you should be careful buying them (2024)

FAQs

Meme stocks: What are they and why you should be careful buying them? ›

While some Reddit traders were able to make a lot of money in a short amount of time by buying and then selling AMC and/or GameStop at the exact right moment, investing in meme stocks is generally very risky. A meme stock's value is a result of its hype on social media and not necessarily the company's performance.

“Meme stocks are shares of publicly traded companies that owe their popularity to social media and online activity,” Passas says. “GameStop is considered to be the first such stock.”

“A key risk in the s1 is that meme stock channels - which started on Reddit (!) - could end up causing volatility in the stock price and trading similar to what happened with RobinHood, AMC, GameStop and others,” Kamran Ansari, venture partner at Headline told MarketWatch.

While it is possible to make money with meme stocks, it is an extremely risky venture. Meme stock investing relies on trying to time the market, which humans, even those professionally trained, are notoriously bad at. It also depends on knowing which stocks will pop and which won't — which is essentially impossible.

The potential benefits of investing in stocks include: Potential capital gains from owning a stock that grows in value over time. Potential income from dividends paid by the company. Lower tax rates on long-term capital gains.

Unlike traditional cryptocurrencies such as Bitcoin or Ethereum, meme coins often lack intrinsic value and are primarily driven by community enthusiasm and social media hype. Despite their whimsical nature, meme coins have gained significant traction in the decentralized finance (DeFi) space.

The word “meme” comes from the Greek mimema, meaning something that has been “imitated.” According to Britannica, the word was first introduced by Richard Dawkins, a British biologist, in his book The Selfish Gene; his intention was for “meme” to sound similar to "gene.” In his book, Dawkins makes a direct connection ...

Memes are right under our noses. While many are quite harmless, it's important to recognize the role they can play in spreading extremism. Sometimes a frog is literally a frog. And sometimes a frog is a vehicle for spreading hate.

As with other moments of viral skyrocketing stock prices, the meme stock trend may not last forever -- especially as some traders return to work and spend more time away from home. Short-term stock prices are driven by supply and demand, so price moves are unpredictable and can lead to quick losses.

Let's back up and explain what a meme stock is for folks who might not be familiar with the term. Meme stock investors are buying based on emotions, momentum and the hope that something will drive the value of the stock higher. The herd mentality influences the price of the company.

Are meme stocks pump and dump? ›

Unlike online pump-and-dump schemes aimed at defrauding unwitting investors, the promotion of meme stocks largely involves buying and holding with the above-mentioned strong hands even after the price spikes.

Elon Musk has turned Tesla into a meme stock as he tells Wall Street to value the EV maker like an AI company, top economist says. Tesla should be viewed "almost entirely in terms of solving autonomy," Elon Musk said last month.

Once you get your money working for you, it can grow quickly even if you aren't investing a lot. Investing $1 a day can turn into tens of thousands of dollars over a long period of time. You can get started by opening a brokerage account and researching low-cost index funds.

Investing in stocks offers the potential for substantial returns, income through dividends and portfolio diversification. However, it also comes with risks, including market volatility, tax bills as well as the need for time and expertise.

The stock market's average return is a cool 10% annually — better than you can find in a bank account or bonds. But many investors fail to earn that 10% simply because they don't stay invested long enough. They often move in and out of the stock market at the worst possible times, missing out on annual returns.

Over a two-day period, from January 25 to January 27, AMC became one of the most-mentioned stocks on Reddit's WallStreetBets as retail investors rallied together to bet against short sellers of the stock, triggering a short squeeze. Over this period, AMC shares surged over 300%.

It is unlikely that you would be sued for sharing a copyrighted meme on social media or creating a meme using someone else's copyrighted content, since such behavior is usually protected by fair use guidelines. You could, however, be sued for using someone else's meme if you are using it to try to make money.

Nvidia (NVDA) is at the center of a new meme stock rally.

Copyright law gives original creators of memes, or the owners of the media used in the underlying meme, the exclusive rights of reproduction, modification, distribution, performance, and display.