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What Is A “Meme” Stock?
The word “meme” comes from the ancient Greek word “mimema” – meaning imitation – and is used to describe information that is imitated and often spread via pop culture references on social media. Simply put, a meme stock is a shared investing idea imitated by other investors.
By Lorimer Wilson, Managing Editor of munKNEE.com
How Did the Meme Stock Movement Start?
According to an article in The Motley Fool (see here),
“Keith Gill started sharing his views about GameStop stock on Twitter, YouTube, and the subreddit r/wallstreetbets in 2019, explaining why a combination of high short interest from short sellers (firms that bet against a company) and an undervalued and underappreciated GameStop business could lead to huge gains. Add in a pandemic, a surge in new investors who grew up online, and the ease of stock trading on new apps such as Robinhood Markets (HOOD), and all the right ingredients came together to create a viral meme stock movement.”
What Are the Pros and Cons of Meme Stocks?
Because a surge in buying activity can send a stock price soaring, there are some benefits to owning meme stocks (and potential meme stocks before they rocket higher), namely:
- a chance for very high returns in a short period and
- an ownership stake in a new investment idea before the rest of the market gets wind of it.
However, as with other highly volatile investments, there are drawbacks to betting on meme stocks because:
- stock price moves are unpredictable with returns often suddenly reversing course when a company loses its luster among individual investors.
What’s the Best Way To Invest In Meme Stocks?
- Build a portfolio of multiple meme stocks that have more than just a one-off chance of providing returns.
- Invest in an ETF that invests in a basket of meme stocks if you’re not interested in building and managing your own portfolio of meme stocks but still want some exposure to the movement.
An example of a meme ETF is the VanEck Social Sentiment ETF (BUZZ), an actively managed portfolio of 75 stocks that rank high in social media conversations. It is UP 33% in the past year.