Meme Stocks Are Back In The Headlines

When it comes to investing, innovation and disruption are nothing new. Every so often, something shakes up traditional markets in unexpected ways. Enter meme stocks: a phenomenon that has captivated both seasoned investors and newcomers alike. But what exactly are meme stocks, and why have they gained such popularity? This article will walk you through the origins and appeal of meme stocks, cite key examples like GameStop and AMC, and tell you what’s really going on.

What Are Meme Stocks?

Meme stocks are shares of companies that gain sudden popularity, often driven by online social communities rather than traditional financial fundamentals. Unlike stocks that perform based on a company’s revenues, profits, or growth potential, meme stocks trend due to internet buzz, virality, or coordinated group enthusiasm. They typically have a passionate online following, with retail investors rallying together to buy and hold the same stock.

This collective action often leads to dramatic price increases and extreme volatility, making meme stocks as thrilling as they are unpredictable.

How Did Meme Stocks Become a Thing?

The concept of meme stocks isn’t entirely new. Investors have always been drawn to speculative opportunities. However, the modern meme stock movement truly took shape in early 2021 with the emergence of GameStop (GME) as a poster child for this trend.

Origins of the Movement

At its core, the meme stock craze epitomizes the growing influence of social media platforms like Reddit, Twitter, and TikTok on investment behavior. Retail investors noticed that institutional players, such as hedge funds, had taken significant short positions against GameStop, essentially betting the company’s stock price would fall.

With coordinated buying, they drove GameStop’s share price to great heights, resulting in massive losses for hedge funds that had shorted the stock. It was a modern-day David vs. Goliath story where individual investors took on powerful financial institutions.

Investors should be cautious when relying on social media for investment decisions, as such sources may not reflect objective financial analysis.

Why Did It Gain Popularity?

The meme stock movement was fueled by several factors:

Access to Information

Social media gave everyday investors a platform to share knowledge, strategies, and enthusiasm.

DIY Trading

Robo Advisers and DIY investing platforms made stock trading more accessible, allowing individuals to join in with potentially lower fees.

Cultural Appeal

Investing in meme stocks wasn’t just about profits, it became a cultural moment. Many participants saw it as “sticking it to Wall Street” or being part of something bigger than themselves. However, investors should be aware that social media-driven enthusiasm may not reflect the underlying financial health of a company and can lead to speculative behavior.

Unprecedented Market Behavior

The perfect storm of economic uncertainty, stimulus checks, and more free time during the pandemic created an environment ripe for speculative investing.

Notable Meme Stocks

While GameStop remains the most iconic example, other stocks have also been propelled by meme culture. Recently, a new group of companies has captured retail investors’ attention:

GOPro (GPRO): As a recognized name in action cameras, GOPro has seen renewed interest thanks to speculative online discussions and social media-driven momentum.
Krispy Kreme (DNUT): Known for its popular doughnuts, Krispy Kreme has experienced surges in trading volume as retail investors highlight it for its strong brand loyalty and nostalgic appeal.
Kohl’s (KSS): This department store chain has become a talking point among online communities, as investors speculate on turnaround prospects and potential buyout rumors.
AMC Entertainment (AMC): Challenged by the pandemic, AMC became a target for retail investors determined to “save” the company. Its stock rose exponentially, buoyed by loyal supporters who call themselves “apes.”
Bed Bath & Beyond (BBBY): Attracting attention for its sentimental value (many people have nostalgic ties to the retailer), this stock had its moment in the meme stock spotlight.
BlackBerry (BB): Once a leader in mobile technology, BlackBerry saw renewed interest despite no major tech developments. For many meme investors, nostalgia again played a role.

Mention of specific stocks is for illustrative purposes only and does not constitute investment advice or endorsement.

Risks and Rewards of Meme Stocks

Investing in meme stocks can be exciting, but doing so comes with significant risks.

What’s The Appeal?

Meme stocks can generate staggering returns in a short timeframe, especially during the high points of social media-driven buzz. Many meme stocks are relatively affordable, making them attractive to newer or smaller-scale investors. For some, being part of such a movement provides a sense of fun and collective achievement.

Understanding the Risks

While stories of rapid gains often dominate headlines, it’s important to recognize the dangers associated with meme stocks:

High Volatility: Share prices can rise quickly but can fall just as sharply, often with little warning and for reasons unrelated to company performance.
Disconnect from Fundamentals: Prices may have little basis in a company’s financial health, business model, or long-term outlook.
FOMO (Fear of Missing Out): Hype may drive individuals to buy or sell without adequate information or due diligence.
Potential for Regulatory Scrutiny: Sudden and unexplained price movements invite attention from regulators and can lead to unforeseen consequences.

The Broader Perspective

At Howland Capital, we see the meme stock phenomenon as an important discussion point in today’s investing world—a reflection of how technology and culture are reshaping markets. However, we do not advocate trying to chase trends or time the market. Our investment philosophy is steady and disciplined: we are long-term investors who choose investments based on solid company fundamentals and sound management teams. We manage client portfolios that are tailored to their values and needs

Final Thoughts

The rise of meme stocks underscores a new era of retail investor engagement—but the meme stock phenomenon doesn’t change the principles of sound investing. If you have questions about meme stocks and your own investments, or want to discuss a disciplined approach to investing, our team is here to help.