What are "meme stocks" and how do they work?

Meme stocks are companies that gain popularity through social media platforms like Reddit, particularly on forums like WallStreetBets. Unlike traditional investments that rise based on fundamentals, meme stocks often surge in price due to viral online attention and coordinated buying by retail investors. These stocks typically experience higher volatility than the broader market, with price movements often disconnected from the company's underlying business performance. Famous examples include GameStop (GME) and AMC Entertainment (AMC), which saw dramatic price increases in 2021 when online communities rallied around them.

What is WallStreetBets and why does it matter for these stocks?

WallStreetBets is a community (or "subreddit") on Reddit where retail investors discuss stock and option trading strategies. With millions of members, it has become influential enough to move markets when members coordinate their focus on specific stocks. The forum gained mainstream attention in 2021 during the GameStop short squeeze. For stocks in this collection, WallStreetBets represents a potential catalyst for price movement, as sudden interest from this community can drive significant buying pressure and volatility. The forum is known for its distinctive culture, memes, and sometimes contrarian approach to investing.

What is a "short squeeze" and how does it affect these stocks?

A short squeeze happens when a stock's price rises rapidly, forcing investors who had "shorted" the stock (betting its price would fall) to buy shares to cover their positions, which pushes the price even higher. Many stocks in this collection have high "short interest" (many investors betting against them), making them potential candidates for short squeezes when positive momentum builds. This dynamic contributed to GameStop's dramatic 1,700%+ price increase in January 2021. While potentially profitable, short squeezes are unpredictable, typically short-lived, and extremely risky for investors who buy near the peak.

How should I approach investing in high-volatility social media stocks?

These stocks require a careful approach due to their unpredictability. First, consider allocating only a small portion of your portfolio (money you can afford to lose) to these high-risk investments. Set clear entry and exit points before investing to avoid emotional decisions. Stay informed about online sentiment, but don't rely solely on social media hype for investment decisions. Consider using stop-loss orders to limit potential losses if prices drop suddenly. Remember that timing is crucial with these volatile stocks, and the strongest price movements often happen quickly and unexpectedly. Most financial advisors recommend keeping such speculative investments as a small satellite position in an otherwise diversified portfolio.

15 handpicked stocks

Reddit Crowd Favorites

Tap into the power of community-driven investing with stocks that capture the buzz of online forums like WallStreetBets. These companies have been carefully selected by our analysts for their viral appeal and potential to benefit from social media momentum.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17