The Real Examples: Key attributes of meme stocks

Meme stocks have several key attributes that set them apart from other investment instruments. Basically, meme stocks are highly volatile securities with wide popularity among users of social networks such as Reddit, Twitter, and Facebook.

Also one of the key attributes is their low price and the so-called cult aura created by small members of the investment community around a particular issuer, the coordinated actions of which sometimes result in the rapid growth of quotations of these securities in the absence of significant fundamentals. At the same time, it should be noted that meme stocks are the sphere of interest of the young generation of modern investors.

GameStop is a classic example of a meme stock

Until early January 2022, the GameStop brand was known in narrow circles as a chain of stores selling computer games and consoles. However, after January 21, 2022 millions of investors from all over the world, the Securities and Exchange Commission, and even the U.S. Presidential Administration took interest in the company. The turnover of operations with the shares of GameStop on 26.01.2022 was significantly higher than that of such giants as Apple, Microsoft, Tesla, and other corporations of world renown. The investment world is even talking about a Wall Street coup and a battle of the generations. So what's the peculiarity of this average brand's enormous popularity?

In the midst of the coronavirus pandemic, the offline seller of game consoles and computer game discs, GameStop was going through far from the best of times. Naturally, due to a set of negative fundamentals and an uncertain outlook, GameStop's stock price pulled back from the $62 level (2017 business peak) to $4 to $10 per share (mid-2020).

Having objectively assessed the fundamental prospects of GameStop, large hedge funds from Wall Street made an attempt to short, that is, to play down the securities of this company. The Melvin Capital Management fund was the most active in this operation. However, in late November 2022, an anonymous member of the Reddit investment community (the community now consists of more than four million users) suggested preventing big hedge funds from sinking GameStop.

Not having much money to buy shares, hundreds of Reddit members began to buy Call options on the company's stock in a coordinated manner. As a result, quotes slowly crept upward. Large hedge funds had to fix their losses and buy back large blocks of shares from brokers to prevent a catastrophe, which triggered an even greater price increase.

The initiator of the Reddit uprising, known on social media as Roaring Kitty (real name Keith Gill), successfully turned his $53,000 into $48 million in just a few weeks. Already on 01/26/2022, GameStop stock was quoted at $147 per unit. Elon Musk also joined in the celebration by voicing his support for Reddit, resulting in a real boom. On 01/28/2022, GameStop stock prices reached the $468 level. According to analysts at S3 Partners, as a result of the agreed financial "flash mob," GameStop stock rose 2000% over the year.

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