Meme Stocks Investing Strategy

Overview

STRATEGY DESCRIPTION

Meme stocks refer to shares of companies that gain popularity and see increased trading volume among retail investors through social media platforms, forums (like Reddit’s Wall Street Bets), and other online communities, rather than through traditional investment rationales based on company fundamentals or industry performance. This phenomenon often results in rapid, significant price fluctuations that do not necessarily reflect the underlying business’s health or future prospects.

The rise of meme stocks is closely associated with the broader accessibility of stock trading through commission-free trading platforms, such as Robinhood, which have enabled a new generation of individual investors to participate in the stock market more actively and collectively. These investors often use memes, viral posts, and social media campaigns to encourage others to buy into certain stocks, thereby driving up the price.

A classic example of a meme stock is GameStop (GME), which saw its stock price skyrocket in early 2021 due to a coordinated effort by individual investors to drive up the price, countering Wall Street hedge funds that had heavily shorted the stock. Other companies, like AMC Entertainment (AMC), BlackBerry, and Nokia, have also experienced similar meme-driven trading surges.

While investing in meme stocks can offer substantial short-term gains, it also comes with significant risks. The highly volatile nature of these stocks means prices can plummet as quickly as they rise, potentially leading to substantial losses for those who buy in at elevated prices.

WHAT YOU WILL LEARN

You will learn about momentum trading and investing and following the crowd investing strategies

LEARNING OUTCOMES

As mentioned above this is a modern and emerging way people now invest. The merits can be mulled over as a separate debate but the old adage of safety in numbers applies here and while this may be a less scientific approach to other strategies and will require strict Risk Management with a close eye on setting your stop losses it is worth visiting this strategy to examine how it performs.