Why did MEME stocks run in late 2020?

Return of the Memes

TLDR: You’ve heard of meme stocks and like many of us, got curious. Even pulled out the calculator app on your phone to punch in how much you could have made if you invested in it. We touch on some history around the Meme phenomenon, look into historical success of them, and whether they are really worth a second look. 

I recall a few years ago during the COVID pandemic evaluating investments. They say invest in what you know / what you use. I started to think…it was Q4 2020 and for the most part, we were all at home. Trying to find ways to entertain ourselves.

Growing up on video games and trying to align investing with companies and products we were using at the time, I was researching video game companies including Nintendo, Sony, Microsoft, and retailers like GameStop.

Needless to say, I did not invest in any of the above and like many played out scenarios of what if I did after seeing one specific company rise multiple folds.

GameStop took wallstreet by a huge surprise. So what happened? 

In a matter of one quarter, from October 2020 to January 2021, Gamestop shares soared more than 5,000%. Imagine that, 100 shares x $2 = $2,000 in October yielded $100,000. The stock market is a phenomenal tool for wealth building.

So Really What Happened: 

Some would say, the Gamestop (GME) explosion was the initial start of the Meme craze. You may have even seen emoji rockets define increases in price action 🚀🚀

Meme stocks were / are stocks that have a few traits unlike many other stocks in the market:

• In many cases these stocks go against fundamentals, essentially voiding any real valuation of the company

• Tend to be heavily shorted / people believe the stock will continue to go down

• Highly popular among retail investors vs the big bank (financial institutions)

• Have probability of short squeezes / massive upside waves like we saw at the end of 2020 into 2021 with GME

Historical Success of Meme classified stocks:

Just like real rockets, when they go up, they must also come down. GME has had a history of this up and down volatility. With many of these meme stocks, they tend to jump on any news. 

More recently, GME saw a 56% surge on positive earnings news. Is this another sign of this meme stocks re-emerging?

Other’s that fit in the same category include AMC which has had a common following and has seen multiple waves of high gains in a matter of a short time.

Conclusion:

Are Meme stocks back and something to consider? As a long term investment these are volatile in nature. The win here normally is caught by surprise and rather quick. If. You are able to catch a meme wave. It can lead to a lucrative day but always remember to not overstay your welcome as these can deflate rapidly.