Complete Guide to Meme Stocks

Did we land on the planet of the apes? 🦍

For a time in late 2020 and early 2021, it certainly seemed so. The self-titled apes of r/wallstreetbets have caused an uproar and even managed to kill some big-name hedge funds while targeting the Mother Of All Short-Squeezes (MOASS).

Now, it has become clear that Wall Street can no longer ignore meme stocks. But are meme stocks really such a new phenomenon, or have they simply taken a more dramatic, visible form lately?

Let’s learn about apes, tendies, the meme man, and underlying mechanisms that drive this new fierce force of the market.

What is a Meme Stock? 📚

A meme stock is widely considered to be a stock of a company that has gained significant traction with one internet community or another. The origins of the official meme stocks can be traced down to the summer of 2020 when people were becoming increasingly bored by the restrictions imposed due to the COVID-19 pandemic.

The official inception of meme stocks came towards the very end of 2021 when r/wallstreetbets member Keith Gill posting under the username The Roaring Kitty encouraged people to invest in GameStop—thus starting the now-famous GME craze.

The two major marks of a meme stock are its cult-like—yet often ephemeral—popularity and price fluctuation that almost completely disregard the standard ways in which stock prices are determined and are mainly based on the sudden spike in volume.

However, we would argue that regarding 2020 as the initiation of meme stocks, and limiting the topic to shares targeted in a similar way to those of GME is a rather reductive approach and that we are dealing with a far wider, more impactful, and long-standing phenomenon.

Don’t worry, we’ll be talking aplenty about the modern mainstream meme stocks, but we’ll first have to delve a bit more deeply into what memes actually are.

Where Did Meme Stocks Come From? 📙

While many of us think of 2012 and the Nyan cat, phylosophyratpor, and me gusta when talking about early memes, perhaps it isn’t that surprising that the very first meme was dated to around 200 CE. The very first one is called the Alexamenos graffito and is likely meant to mock early Christians in Rome.

Memes can be defined as short, self-replicating pieces of cultural information, and they have gotten supercharged by going digital. Richard Dawkins—the man who coined the term we use today—is aware and apparently appreciative of the internet meme as he views it as a rather natural evolution of the phenomenon.

Due to their very nature, memes can influence us profoundly both on a conscious and subconscious level and lend themselves well to marketing, propaganda, and opinion-shaping. This means that they, among other things, have always had great power to influence our purchases both in the supermarket and on the stock market.

While it is true that the age of the internet meme is a bit new, and that GameStop has been the first true expression of their power over the stock market, we hope we will be able to argue that they have also been relevant in their analog days—obviously without disregarding the developments of 2020 and beyond. 

How Memes Influence Markets 👨‍🏫

People have grown wary of commercials, and trust in media has generally suffered a significant drop according to a Gallup poll. Memes make a perfect replacement vehicle here as their origin often becomes obscured due to endless sharing and reposting, and a clever ad can point you in the desired direction without explicitly saying anything.

A famous example of early use of such stealthy marketing was the “torches of freedom.” Back in the 1920s big tobacco successfully associated itself with the women’s suffrage movement by handing out cigarettes during a 5th Avenue march. The idea was to promote them as another way of subverting the oppressive status quo since smoking was seen as a huge taboo for women back then.

That marketing stunt was hugely successful and effectively associated smoking with women’s rights, and pretty much everyone forgot why.

Marketing is, of course, hugely important when it comes to investing. Stocks, stock brokers, funds, and pretty much anything else that is traded can be regarded as a product. This means that informing the public, for example, about a certain company going public is of huge significance. 📰

Furthermore, associating certain stocks with certain ideas and emotions is very important. A small startup needs the public to feel like it has a lot of potential in order to raise enough funds, grow, and succeed. A well-established behemoth like Coca-Cola benefits from being seen as a blue-chip stock—nobody expects to make heaps of money from investing in a company like that, but everyone is sure they will not lose what they have.

While people might doubt a stellar review you give yourself in an ad, they are far more likely to be receptive to a more vague, yet emotionally charged message. For example, while Apple’s success has often been attributed to its innovations, its commercials have always focused on selling ideas and feelings, not products. This has been a recurring theme from as early as the eerie 1984 ad for the first Macintosh, to the “happy dancing people” ad for the new AirPods in late 2021.

A very famous modern reoccurrence of this “Apple” model comes in the form of Elon Musk and Tesla.

Which Meme Stocks Predate GameStop? 🕰

An important feature of meme stocks, as far as the mainstream definition is concerned, is that they tend to be overvalued. We can’t really argue this notion when it comes to GME, AMC, and similar crazes, but don’t believe it is definitively true when we look at the broader relation between memes and the market.

If we argue that memes are short pieces of cultural information that replicate themselves, and that meme stocks are stocks whose popularity is derived from memes, we would have to conclude that memes have some overlap with market truisms and adages.

In this sense, it can be argued that pretty much any stock Warren Buffett invests in is in a way a meme stock. We don’t mean to say that there is anything amateurish about Buffett’s investing, nor that the stocks he picks necessarily become overpriced, but that the general idea that the man is a market wizard is—by the above definition—a meme and thus generates meme stocks.

A darker manifestation of this kind of thinking came to a head in 2008. Once again going by the somewhat broad definition of a meme, the notion that mortgage-backed securities were fail-safe was also a meme and generated meme securities.

This particular case is somewhat more reminiscent of modern meme stocks as it has one of its main features—the value of these derivatives and the bubble they caused was driven pretty much exclusively by the “meme” that they were prime investments. 

Michael Burry, the author of the Big Short, rather eloquently explains his reasoning behind betting against the hollow mainstream, and his thinking regarding modern GME meme stocks.

How Meme Stocks “Manipulate” the Market 🏗

A more modern example of trickle-down stocks-related memes comes in the form of Elon Musk. The man is a bit of a master of weaponizing memes to drive traffic his way. Primarily, he is a meme himself in a similar vein to Warren Buffet. He is famous, interesting, successful, and often seen as a visionary.

Musk has repeatedly used his somewhat cult-like following to propel or depress certain prices throughout 2021, perhaps most famously with dogecoin which Tesla will accept as payment. Another famous example of him using his influence to drive prices was when he tweeted that Tesla stock is overpriced which got him into hot water with the SEC and prompted him to hire an ex-SEC lawyer.

Furthermore, it appears that Musk is willing to embrace his personal memeness. This should certainly be regarded as an opinion, but many of the fun poses he struck during his address after selling a part of his Tesla shares appear like meme-bait. Intentional or not, Musk’s continued and increasing presence in the public conscience is sure to only increase his influence.

NFTs also appear to often be designed specifically as meme-securities. Their image-nature is very similar to the standard meme format, and their embracing pop culture and ape iconography certainly appear to bolster our claim.

The ape imagery is particularly important as “ape” is a self-moniker of meme-stock investors.

Have Meme Stocks Started a New Era 🧐

If you choose to agree with us and see the meme-stocks as an old phenomenon that simply got formalized recently, you might also agree that what happened in late 2020 is more of democratization, than inception. Essentially, while in the past only the rich and powerful could mobilize the masses through propaganda, now the power equally rests in the hands of the everyman.

Furthermore, the Gamestop craze is in many ways reminiscent of revolutions of old—it came out of a place of spite and anger, it targeted the rich and unjust, the hedge funds, and was rather destructive in nature. The idea of diamond hands speaks a lot of the intent behind memeing GameStop—not to make loads of money, but to stick it to the man.

And it succeeded—one of the biggest short sellers of GME, Melvin Capital, went broke as a result of the short squeeze while many other short sellers lost billions. 💸

We feel that this is likely to be a bittersweet start to an entirely new era. These crowd-backed stock rallies inherently increase volatility, but could ultimately give the investors the power to vote with their money—boost companies they like, and harm those they do not.

You think that the ruling in the Nestle child slavery case is outrageous and that the chocolate giant should suffer? You can try and rally support to kill it on the market. You found a really good startup still struggling to escape the penny stock phase? You could try and build enthusiasm to propel it to the moon. 

Obviously, the future isn’t guaranteed to be rosy and it might lead to a bizarre form of corporate populism. 

GME and Market Manipulation 💰

The story of GME is very well known by now. During the summer of 2020, activist-investor Ryan Cohen argued that GameStop could be a great investment. This was picked up by The Roaring Kitty of r/wallstreet bets who convincingly argued for a short-squeeze in video format.

His plea truly picked up boosting GME stocks from $5 to $20 by the end of 2020 and skyrocketed it to almost $350 in late January of 2021. This immense short squeeze caused several hedge funds to go bankrupt and helped quite a few people settle their loans.

It thus set the entire revolutionary tone to the movement and made the online stock broker Robinhood more akin to Robin Hood than ever before. That is, it had been until the it blocked users from buying more shares, which was suspected by retail traders as some sort of collusion between Ken Griffin and Robinhood.

What Did the Authorities Say About GME? 💬

The story of GME is also still fairly controversial with claims of fraud and market manipulation running rampant on all sides—small investors are pointing their fingers at a rigged system, while the big and well-established traders are blaming the irrational newcomers.

Despite the maelstrom, few actual charges have been made, and that really isn’t surprising. Market manipulation is pretty hard to prove under the best of circumstances. Additionally, meme stocks are a part of the field the law has so far been woefully unequipped to handle efficiently—the internet.

Ultimately, while Keith Gill’s former employer did have to pay a fine, and many charges and threats of charges have been made, no true impactful legal action has been made. In fact, some politicians have made it one of the few bipartisan issues—republican Ted Cruz, and democrat Alexandria Ocasio-Cortez expressed their support for the movements albeit without agreeing to cooperate.

And yet it is nearly impossible to really say that the GameStop craze wasn’t a planned and manipulative scheme that worked out far better than expected. Many of its most enthusiastic early hype men have reportedly been bullish on GME for years and would greatly benefit from success.

Anti-GME Market Manipulation 🕵️‍♂️

To begin with, we would like to reiterate that at the time of writing, as far as the authorities are concerned little if any punishable market manipulation really occurred. But since in an ideal world the merits of a company should be the only real factor determining stock prices, it can be argued that celebrities and regular people talking on social media are ultimately manipulating the market in doing so.

An interesting case comes in the form of Citron Research—a company with a vested interest in GME remaining shortable. In late January 2021, they tweeted that the Reddit crowd has a losing crowd and GameStop is about to crash down $20 very soon.

On the one hand, the claims they made would be reasonable in a different context—but they either completely disregarded the enthusiasm behind the craze, or willfully tried to discourage people from participating in it so that their bearish bets could pay off.

Tomorrow am at 11:30 EST Citron will livestream the 5 reasons GameStop $GME buyers at these levels are the suckers at this poker game. Stock back to $20 fast. We understand short interest better than you and will explain. Thank you to viewers for pos feedback on last live tweet

— Citron Research (@CitronResearch) January 19, 2021

A fact perhaps pointing to the latter is how coy they got about what they said in the tweet claiming they understood the short interest better than the general investing public. In the end, their prediction wasn’t correct, but this example shows how different actors were competing to sway the public opinion about GME in their direction—the Gamestop saga was similar to a political battle of sorts, with each side trying to get more voters on their side.

Is Meme Stock Manipulation Bad? 🤔

The legality and ethics of meme stocks remain within a gray area. On one hand, as we’ve said, ideally all prices should accurately reflect the state of the company they belong to. On the other hand, it isn’t like big-name investors haven’t been using online platforms to inform their audiences which stocks they were going to buy, which they were going to short, etc.

Perhaps the biggest change that the modern meme stocks have brought is that this kind of technically legal, borderline manipulation is taking a form more akin to a debate while everyone is so used to it being like a speech—with tweets and interviews given by people like Andrew Left or Elon Musk.

We still have to see how good or bad the influence of meme stocks will be for the market, but it is rather apparent they will have to be taken into account when investing in the years to come.

Types of Meme Stocks 🗃

Considering that memes require a physical medium—image, sound, video, etc—there is little wonder that they had a renaissance with the rise of the internet, and, likewise, there is little wonder that they took until 2021 to create universally-recognized meme stocks. So, let’s look at some conventional, and some more obscure examples.

The First Stonk: GameStop (GME) 📉

GameStop is the first true modern meme stock and we can see all of their most common features in it. It is a decaying, yet beloved company and it has been targeted by the types likely to be hated by the crowd of a subreddit with a description reading “Like 4chan found a Bloomberg terminal.”

Still, GME is, in a way, also a vindication of those believing that becoming overpriced isn’t necessarily a hallmark of meme stocks—and that every color has many shades. While the craze was certainly a perfect storm caused by the relatively rapid maturing and expansion of online communities amidst the covid-19 pandemic, and just how desperately shorted the company became—there is also something to be said about the exact moment the frenzy truly took off. 🚀

The company hired some of the key people of the online retailer Chewy in early January indicating its willingness to grow out of its brick and mortar shoes. GameStop also points to the potential longevity of meme stocks. GME stocks were standing at $170 at the beginning of December 2021—compared to one year earlier when traders could buy GME stock for $12—despite the main body of the craze being long over.

This is likely due to their digitalization process which appears to be working.  While their reports for Q3 of 2021 have been fairly abysmal, they are different from 2020 as they seem to be a result of overspending in order to modernize, rather than whimpering death throes. This is an approach another meme stock took to great effect, and we’ll talk about that case as well just a little bit down the line.

Gamestop was followed by numerous other similar meme stocks—a darling of the apes being companies well past their prime—Blueberry, AMC, Nokia, and the like. The efforts towards repeating the GameStop maneuver around these firms achieved varying levels of success.

One of the more interesting modern mainstream meme stocks is Robinhood itself, which disproves the notion that the price rises of meme stocks are entirely without concrete merit.

The Marcher Stonk: Crocs (CROX) 🐊

Crocs is a bit of a strange case as it both fits in the modern meme-stocks era and the one preceding it. It also represents another argument that meme-powered securities can possess longevity under the right circumstances.

Crocs is also a strange case as it owes its rise to the famed ugliness of its footwear. This created the “crocs stay on during sex” meme that saw its first peak in 2018 but has since had several resurgences coinciding somewhat neatly with the company’s stock stellar price rise.

Crocs also give a bit of a blueprint as to what companies can do with their meme status. The footwear maker has been churning out new and interesting products—including a “warm and cozy” holiday edition—truly riding on the rise in the public interest.

The Controversial Stonk: Tesla (TSLA) 📈

Elon Musk’s Tesla is a controversial topic when it comes to meme stocks. On the one hand, it is an immensely innovative corporation operating in a booming and promising field that is outperforming its predecessors in terms of eco-friendliness decisively if not utterly. 

Tesla certainly stands on its own two legs on the stock market. On the other, it has a somewhat cult-like following, creates a lot of enthusiasm simply by being Tesla, and benefits from connections to Musk’s other, non-publicly-traded ventures: SpaceX and The Boring Company.

A common argument for Tesla not being a meme stock is that it isn’t overpriced. We, however, don’t feel that is a good criticism on its own. Firstly, we’ve already argued that meme stocks aren’t always overpriced. Secondly, it is hard to decisively claim that Tesla isn’t overpriced as some economists argue that we are facing an everything bubble, while others point that the bubble precisely is in tech and crypto.

The Cryptostonks 🪙

Finally, we’d like to address what we consider to be obvious meme-bait: certain cryptocurrencies and certain NFTs. The first crypto that comes to mind when someone says meme is dogecoin which is literally based on a meme and has been propelled to the moon virtually by a meme Tweet by Elon Musk at the beginning of 2021.

Looking at many of the other such altcoins, we think it would be fair to say that most of them are looking to become meme coins as their only chance for prominence. Indeed, this possibility is their best bet as there are over 4,000 cryptocurrencies on the market at the time of writing.

The NFT market is similar. It is young, it has exploded, it utilizes a lot of memes, meme stock imagery, and it is rife with fraud. We also think saying that most NFTs are looking to become memes and thus gain visibility is fair.

That being said, with all the absurdity of many of these tokens it is interesting to see that it also represents a democratization of a sort. The more traditional art market shares many of the oddities of NFTs and it is somewhat interesting to see it finally released to the general public and mimicked in the open.

Bitcoin certainly isn’t memey like many of the altcoins out there, but it’s proponents on social media often post edited pictures of them with glowing “laser eyes” that represent the sheer power of the first crypto currency. This meme is not coincidental considering Bitcoin is a symbol of fighting the financial powers that be for many.

If you don't understand laser eyes, you don't understand #Bitcoin. Welcome to the team @ParisHilton. https://t.co/Pe3dc7KxPD

— Michael Saylor⚡️ (@saylor) April 2, 2021

The Future of Meme Stocks 🗓

Meme stocks are likely to have a life cycle similar to memes themselves. The concept will remain more-or-less the same for a very long time, but they will be appearing and disappearing rapidly. Looking at GameStop, it is still relevant and it is still widely regarded as a meme stock, but its heyday was from the winter of 2020 until the spring of 2021.

Others will likely follow this pattern and either vanish swiftly or go through a rapid metamorphosis out of the modern, mainstream meme stocks and into more traditionally recognizable securities.

One possible danger for the survival of meme stocks is legislation.  It is very hard to discern what the ultimate stance on this type of investing will be, but one cannot miss seeing the possibility it will be outlawed. While being very public, and mostly conducted by regular people, the internet congregations can be seen as conspiracies to manipulate the market.

For example, the ex-employer of Keith Gill was charged with a $4 million fine by the Commonwealth of Massachusetts due to the GameStop craze.

Whatever the future ends up holding, we believe that some of the core principles, and the prevalence of memes in investing and advertising, are here to stay. Thus, the importance of feelings over facts in marketing, and the effectiveness of memes in inducing emotions should always be kept in mind.

The Risks of Meme Stocks ⚠

There are three main risks of meme stocks. They should all be viewed as bubbles until proven otherwise—until the craze is over, the prices are stabilized, and other indicators of technical and fundamental analysis tell you they are realistic. Until that point, they are only driven by the current increase in popularity, and potential panic this might cause among the short-sellers.

They can fail to lift off. For example, you could decide to get some good money off of the next meme stock, put a large portion of your budget into it, and realize that pretty much nobody else did the same.

They can completely throw off both your fundamental and technical analysis. Since the only way to have a realistic shot at predicting what will become a meme stock is to be at the right place at the right time, all the elegant equations and indicators are basically worthless.

How to Invest in Meme Stocks 👷‍♂️

The process of buying meme stocks isn’t likely to be different from buying any other stocks. You’d just need some money and a broker—which is super easy nowadays as there is an abundance of reliable online stock brokers.

The strategy of investing in meme stocks is a whole other topic. Considering how new and risky the modern, mainstream meme stocks are, the best advice would be to venture only a small amount of capital, and not allow quick, big gains to cloud your judgment—victories on the stock market are almost always in the long-term.

A roundabout way of investing in meme stocks would be to go after the relatively new Roundhill MEME ETF. However, you should remain cautious even if you choose this path as this particular fund had a very rough start and has a very uncertain future.

Meme Stock Glossary 📖

When meme stocks came into the public eye, they developed a slang of their own. We’ll briefly go over the most common, and important words of this newspeak.

Apes: Apes is the self-given nickname of the members of the meme stocks community. It has two most likely etymologies. One believes it is a reference to the Planet of the Apes franchise, and the other that it represents the idea of “dumb apes”—average Joes—taking on the stock market.

Tendies: Tendies are short for chicken tenders and represent gains from investing in meme stocks.

Diamond Hands: Diamond hands refers to the practice of holding onto assets despite potentially huge losses in a belief that the prices will rise again, or that the mission hasn’t been completed yet—for example, that the hedge funds haven’t “bled” enough yet during the GameStop craze.

Hold the Line: Hold the line is a battle cry meant to inspire members of the community to hold onto their diamond hands.

Paper Hands: Paper hands are what you have when you don’t hold the line—when you sell early. it is used derogatorily.

To the Moon: To the moon is the idea that a stock’s price will skyrocket practically indefinitely due to it becoming a meme stock.

FOMO: FOMO is a concept from outside the meme stock community, though embraced by it. It means “fear of missing out”—if you don’t join the craze, you’ll regret it.

YOLO: YOLO is a meme acronym from the early 2010s that stands for “you only live once.” It is usually used to encourage reckless behavior.

BTFD: BTFD stands for but the f*****g dips—go long after the price has declined counting on it rising again.

Stonks: Stonks is a synonym for meme stocks and comes from a somewhat old meme featuring the meme man, a variation of whom was later also used in the NPC meme template.

Conclusion 🏁

Memes have left a big impact on the 2010s, and meme stocks are likely to be very influential in the 2020s now that they have fully entered the main stage—and they have the potential to be real game-changers. The relative democratization of price-determination on the stock market is a huge deal alone, though it is at risk of being severely stifled by some future legislation.

On the other hand, while they are certainly big news now, there are no guarantees they will truly remain. What is certain to remain, however, are the underlying mechanisms of marketing, psychology, and public opinion molding we have discussed here. Furthermore, even if the modern meme stocks’ stay proves to be relatively short, they are sure to have already impacted investing in ways we probably aren’t even consciously considering yet.

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