Meme stock is a stock whose value can go up wildly for no obvious reason. Meme stocks are new in the market, these stocks originated on reddit and other social media platforms. Typically, a good stock would rise 30-50% in a year but when we talk about meme stock, it could make the same move overnight and this is the reason why people talk so much about meme stock.
Meme stock can be any stock, it does not matter whether the company whose stock went up is good or bad. What matters is internet, if internet likes it thousand of retailers or non-professional traders pile in which will drive up the price of the stock.
Some recent examples of meme stock are Game stop, AMC and Blackberry. These companies are not that great when it comes to generating profits or making money but the reddit channel Wall Street Bet started talking about these stocks. Game stock was the first which began to surge in January 2021. The stock went from 17.25$ to 147.98$/stock in a matter of weeks.
Earlier in the stock market, it used to be that how you can make the most money picking good companies, but you can make a ton of money just by picking a good “bad company” or “meme stock”. Meme stock is held online so they undergo some common cycle. They are: –
- Early Adopters– It is a phase where investors think the stock is undervalued. Hence, they start buying the stock.
- Early interest– It is a middle phase where people who track the finance media start buying in.
- Fomo– It is a phase of fear of missing out on the trending stock. People start buying in the trending stock by this time its late to earn high profit because early adopters and early interest makes the most money out of the stocks.
- Flash Selling– It is a phase where Early adopters sell the stock and take the profit. And stock price goes due to less demand.
- The whole cycle can happen in few days and weeks. The volatile price action in stock market is not because the company is good but because many people want to get into the trend. All of the volatility has led to an increase in retail trading.