QBITS
What Is a Meme Stock?
A meme stock is a stock that can fit almost any other classification: growth, value, industrial, small-cap, large-cap, or anything in between. These are stocks that spike in price and volume rapidly with little regard to the underlying firm’s fundamentals or value.
🤔 Understanding meme stocks
A meme stock is a stock that can fit almost any other classification: growth, value, industrial, small-cap, large-cap, or anything in between. These are stocks that spike in price and volume rapidly with little regard to the underlying firm’s fundamentals or value.
Meme stocks rose in popularity due to conversations and movements that originate in online forums such as Reddit’s WallStreetBets, various Twitter accounts (including Elon Musk’s own profile), and on TikTok. But because their prices are artificially bloated, they tend to crash soon after they soar, leaving thousands of (primarily retail) investors holding the bag.
What this means for you
If you want to make your fortune in meme stocks, our advice is simple: don’t.
As a rule, it’s unwise to let FOMO dictate your investment strategy, no matter how lucrative meme stock trading may seem. There’s no way to estimate which stock will propel investors’ portfolios to unprecedented heights. And by the time the average person climbs on, it’s likely reached the “FOMO phase.”
But if you want to invest in meme stocks, there are a few steps you can take to, hopefully, minimize your risks:
- Understand that buying into low-quality, high-priced stocks come with a risk of losing your capital.
- Do your due diligence and choose the right company. Focus on stocks with competent, creative management teams that know how to exploit the hype, which may increase the underlying value of their business.
- Get in early – and get out when the stock starts to drop. (In other words, prepare an exit strategy and then stick to it.)
Additionally, it’s important to recognize that most successful meme stock investors are professionals, high-net worth individuals, or traders who buy on margin at exponentially increased risk. And while a few of them do make their fortune in the stock market, they are the exception – not the rule.
If you really want to see success in your investments, taking the long approach with a well-diversified portfolio is, statistically, a better path to success.
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