Though it may feel like much longer ago, the GameStop saga of January 2021 gave rise to a new demographic of investors, and an entirely new concept: “meme stocks.” Meme stocks are essentially stocks that see substantial surges in price and popularity because of the influence of social media.
GameStop is a prime example of this, as the subreddit r/WallStreetBets deliberately drove up the price of their stocks. They did this because one user noticed that a prominent hedge fund, Melvin Capital, had taken a significant number of short trades against GameStop, which was essentially betting on GameStop to fail.
That user then rallied other users to their cause, collectively buying as much GameStop stock as they could to drive up the price. This was all made possible thanks to a wave of new DIY investing apps, including Robinhood, which were all freely available for any retail investor.
On 5 January 2021, GameStop stock prices were slightly more than $17 each. On the 27 January, they reached a peak of more than $357. Since then, their value has been volatile, reaching highs of $302 and lows of $40.
Financial experts say that the attraction of meme stocks is understandable
A sustained interest in meme stocks certainly may seem surprising, especially since those who bought GameStop stocks at its peak in January have suffered significant losses. In June 2021, American cinema chain AMC Entertainment saw a surge in stock prices after another rally on r/WallStreetBets.
Many financial experts are saying that the popularity of meme stocks is understandable, given current record-low interest rates.
Myron Jobson, a personal finance campaigner with Interactive Investor, said: “The allure of investments tipped to ‘go to the moon and back’ is strengthened at a time where banks and building societies offer a pittance on cash savings amid the persisting record low interest rate environment.”
The pandemic and low interest rates have driven large numbers of people towards DIY investing, with online investment platform AJ Bell gaining more than 50,000 new users between October 2020 and March 2021. Hargreaves Lansdown have experienced similar success, with an increase of 84,000 active clients between June and December 2020.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, claimed that the recent rise in GameStop and AMC stocks is partly due to the reopening of the US. She believes some investors have confidence in the future of these companies now that lockdown is easing, but she doesn’t entirely discredit the meme stock phase.
“There also appears to be a hangover from the revenge saga which played out earlier in the year when GameStop was one of the targets of an army of retail investors.”
Meme stocks may fluctuate, but they are likely here to stay
While the future for both AMC and GameStop look uncertain, thanks to large amounts of pandemic borrowing and a shift towards online streaming services and game retailers, meme stocks might be here to stay thanks to the influence of social media platforms and influencers.
Streeter looks upon the meme stock trend with optimism and looks to a future where far more younger people are investing in the stock market.
“The cat is out of the social media bag as far as the financial markets are concerned and the influencer trend and investment chatter in internet forums is unlikely to wane… although in many ways it is encouraging that it’s sparking an interest in investing among younger people.”