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What you need to know about meme stocks and meme coins
It can seem like new terminology is added to the finance realm every day: new acronyms that need googling and new words that make you scratch your head. After reading this, the terms “meme stocks” and “meme coins” will no longer be foreign phrases.
Investing 101
If the whole idea of starting to invest makes you flustered, not to worry! We’ll walk you through all of the important steps of investing, from determining your risk tolerance to your asset allocation. We have all the investing tips for millennials to start investing and feel good about it.
Once you've mastered Investing 101, you’re ready to dive into meme stocks.
The birth of the meme stock
In the early 2020's, meme stocks have taken the investment world by storm.
A meme. In the chance that you haven’t heard the term “meme” or are not fully sure what it means, the definition of a meme is: a humorous image, video, or text, that is sent rapidly around the Internet, sometimes in different variations. The idea or joke becomes viral, leaving a large digital footprint. There usually aren’t attributed creators to memes, and sometimes it could take years for a meme to achieve its viral glory. (Meaning, sometimes you’re ahead of the curve and your joke doesn’t catch on to the masses for a few years.) When we hear "meme stock" we're talking about a stock that has gone viral with a cult-life following.
Take GameStop (GME), for example. This was one of the first meme stocks. The “Reddit revolt” where a group of Reddit users under the name r/wallstreetbets, essentially started a revolution. They played with the suffering GameStop stock and made it rise over 100 times the original value. The surge of investments into GameStop was particularly startling since the corporation has been widely deemed as declining and suffering. Why? Well, people don’t really buy what they sell anymore (electronics and video games). And, given its flattening relevance, before this meme stock boom, GameStop was well on its way to fizzling away for good.
The power of the Internet
A group of retail investors decided to pile in investments and drive up the stock price of GME. This move led hedge fund investors to short the stock: deeming it as overvalued, expecting the investors to stop their shenanigans. Sadly (for the hedge funds), the Reddit revolution took shape.
The retail investors instead planned a short squeeze where they bought and held GameStop stock as a way to drive the stock price higher and higher. The stocks the hedge funds intended as a smart tactic ended up causing them huge losses. The stock price rose tremendously, peaking at over $400!
The phenomenon between Reddit and GameStop has continued throughout the stock market. Meme stocks, (which are trends within themselves), have been trending!
A crash course into meme stocks
Social media can make the rise of movements pretty simple: like-minded individuals can share ideas virtually regardless of their geographic location. Technology is simplifying investing. A multitude of apps allow users to invest with little experience, with the tap of a few buttons.
These retail investors took some power out of the hands of institutional investors and left big firms at the mercy of the market disruptions. So, apparently there are times when you can forget every preconceived idea of a goal of a perfect market equilibrium, because a group of investors can sometimes change everything.
The difference between meme stocks and meme coins
A meme coin is a cryptocurrency that is based on a meme and has a viral following.
Have you watched Squid Games? Or, maybe invested in the Squid Games coin!? Yep, this meme coin—or, something that was created as a joke—has been taking Netflix watchers by storm. The Netflix show had such a profound impact on its viewers, some were inspired to create a cryptocurrency off of it—not officially linked to the creators of the show, whatsoever. However, SQUID (the currency) was entirely a scam. After a 310,000% price rise of the token in less than two weeks, the creators liquidated all of their assets. Investors were left unable to sell their coins and at complete losses. Ouch.
Maybe the spelling and grammar errors on the website, the inability to reply to the Twitter account, and the inability to trade coins were warning signs that should have turned away a rational investor. Investing takes due diligence. While it may seem like a crap shoot, we recommend you do your research before getting in the game.
The development of investment slang
New words are added to the dictionary each day, and that includes the finance realm too.
“Diamond hands.” Diamonds are solid and withstanding. If you have diamond hands, you’re prepared to hold a position all the way to an end goal and will withstand potential risk, headwinds, and losses.
“Paper hands.” So diamonds are hard and tough, but paper is fickle and weak. Paper hands are when someone folds on an investment because the pressure of the situation is too intense. You exit a position earlier than you planned: you’ve got paper hands.
“Tendies.” Shorthand for chicken tenders, some made-up language for gains, profits or money. Figuratively, tendies measure how many chicken tenders one can buy with their gains.
“To the moon.” This is an optimistic outlook that anticipates extremely above-average returns. To the moon the investors go!
Should I join a meme movement?
Remember, it’s real money. This is not Monopoly money to play around with. While there are a few large beneficiaries who tend to win out on these trending stock movements, many investors suffer monumental losses. Meme stocks react based on trends, social media, followings and speculation. Not based on actual company performance. We offer caution when following a meme stock.
Don’t let a fad dictate your finances if you cannot find a rationale behind it. There is also very little data drawn up from meme stocks because well… the history isn’t much of a history… a year hasn’t been sufficient to measure anything concrete.
Looking at the future
We don’t have a crystal ball that can see Wall Street in five years. Nor are there any meme psychics who can predict the next big meme stock.
There are a few known things about the market, though:
The market will ebb and flow, and new trends will replace old ones.
Having a diversified portfolio will minimize your risk or loss. (This is when your asset allocation is spread across different sectors, so not all your money is in one basket, or sector.)
Hopping blindly onto trends can often cause regret… remember those feather hair extensions everyone once thought were sooo cool? Yeah, they don’t look great in pictures. So maybe, think twice and consult a professional before doing the financial equivalent of a fad.
Finances can be confusing. We’re here to help, with just a few minutes out of your week! Pop into your To Do list and get at those to-dos–we’ll be here to help guide you along the way.