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What Is a Meme Stock?

What do you “meme” the price went down after I bought it? Yes, this is a very risky kind of investment.

Written by Devon Delfino / September 1, 2022

  • Meme stocks are typically associated with Reddit investors, and are an attempt to band together to raise a stock price.
  • GameStop, AMC and Bed Bath & Beyond are all examples of meme stocks.
  • For most people, it’s not a good idea to invest in meme stocks.
  • Unlike traditional stocks, meme stock values are based solely on speculation—so they can be volatile.

Sometimes, it’s funny to do things just for the meme. But what does it mean when a stock is considered a meme stock? Here’s what you should know about meme stocks, including what they are, examples of them and why they’re so controversial: 

Inside this article

  1. What is a meme stock?
  2. Examples of meme stocks
  3. Criticisms of meme stocks
  4. Meme stocks vs. other stocks

What is a meme stock?

“Meme stocks are companies whose shares are extremely volatile because of the trading of online communities, such as Reddit,” says Robert Johnson, a professor of finance at Creighton University’s Heider College of Business. 

Meme stocks gain spotlight when a group starts buying a stock enmasse in an attempt to drive up the price. And, because of this bandwagon approach in places like r/WallStreetBets, they become a meme. It can be like seeing a bunch of other people buy something at a store, then without any research about the product, going up to the checkout counter and yelling “take my money!” (And, yes, there’s danger in that approach.)

“Meme stocks became popular when the Reddit mob tried to beat institutional hedge fund investors who had shorted the stock because of poor fundamentals,” adds Johnson. “Short sellers typically sell the stocks of firms with poor fundamentals—like earnings, cash flow and revenues.”

Creighton University professor Robert Johnson's headshot

Meet the Expert

Besides his professorship, Johnson is also the CEO of Economic Index Associates, a New York-based firm. He is a Chartered Financial Analyst®, too.

Examples of meme stocks

GamesStop was the original meme stock. In January of 2021, a large group of Redditors decided to buy the stock, driving up its value from around $18 per share to about $380. So if you’d bought 10 shares at the original price, your $180 investment would have been worth $3,800 at the high. At the same time, hedge funds had bet on GameStop’s demise (by shorting the stock), so those hedge funds saw some pretty significant losses.[1]

“GameStop had a very significant short position and the Reddit mob believed that by driving the price of GameStop up by purchasing its shares, they could force the short sellers to capitulate and cover their shorts, further driving up the stock price,” says Johnson.

Since then, there have been other meme stocks including[2-3]:

  • Bed Bath & Beyond

  • AMC

  • Koss Corp

But not all meme stocks have a happy ending for casual investors. With Bed Bath & Beyond, for example, Reddit users once again bet that the stock price would go up, this time because Ryan Cohen, an activist investor and the chairman of GameStop, had acquired nearly 10% of the company, says Johnson. But after Cohen sold his stake and the company announced that it would be selling an undisclosed number of shares and had plans for layoffs, the stock plunged. In fact, prices fell 21% in a single day.[4]

“The moral of the story here is that many retail investors confuse investing with speculation,” says Johnson. “And, while investing in the stock market is a positive sum game over the long run, speculating on meme stocks in the short run is a dangerous game.”

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Criticisms of meme stocks

Done perfectly, meme stocks would balloon in price after you’ve purchased them, giving you amazing returns that beat the market. However, it’s really a matter of timing and luck—and, as any good investor knows, trying to time the market is never a good idea. Jumping on the meme stock train can result in losses, sometimes in a big way.

“The biggest criticism is that speculators aren't purchasing companies with strong fundamentals, but are buying stocks in which they believe a group of investors can drive the price action through unified action,” says Johnson. “The battle cry of the meme stock investor is ‘HODL,’ which means hold on for dear life. The meme stock investor believes that if the group stays unified, they can win.”

It’s an understandable impulse, and believing in the idea that rising tides lift all ships has some nobility attached to it. But done this way, it’s akin to gambling, says Johnson.

“The adrenaline rush that comes from the exaggerated volatility of many meme stocks is what drives some speculators to gamble in this fashion,” says Johnson. “But make no mistake, this is not investing, it’s speculation.”

That’s why he advises against investing in meme stocks for the average investor.

Meme stocks vs. traditional stocks: What’s the difference?

Meme stocks are still stocks: That means, like any other stocks, when you buy one, you’re essentially becoming a part owner of a company. But the primary difference comes from how people approach meme stocks versus other stocks.

Stock values are based on the market, which includes everything from company outlook, the wider market and past performance.[5] So typical stocks with strong fundamentals are less likely to take a massive hit due to public perception. But with meme stocks, people buy them because of speculation. The meme stock game is also a short-term one, whereas experts recommend taking a long-term approach to investing.

“​​The bottom line is that many investors are swayed by stories and ignore fundamentals,” says Johnson.

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Should I invest in meme stocks?

For the average person, it’s not a good idea. Speculation without research is risky.

Why are meme stocks risky?
Are there any pros to investing in meme stocks?
Article Sources
  1. Michelle Chapman and Stan Choe, “Here’s what happened to GameStop stock: Small investors on Reddit overwhelmed the investing pros. AMC may be the next battleground,” Chicago Tribune, Jan. 27, 2021, https://www.chicagotribune.com/business/ct-biz-gamestop-stock-shorts-reddit-20210127-eyg5vzlcz5g5hdifjbu64tvjpa-story.html.
  2. Paul R. La Monica, “The meme stock craze is back: AMC, GameStop and Bed Bath & Beyond soar,” CNN Business, Aug. 8, 2022, https://www.cnn.com/2022/08/08/investing/meme-stocks-bed-bath-beyond-gamestop-amc/index.html.
  3. “Don’t listen to the meme stock hype: KOSS,” Forbes, May 12, 2021, https://www.forbes.com/sites/greatspeculations/2021/05/12/dont-listen-to-the-meme-stock-hype-koss-corp-koss/?sh=5be2d3ea5784.
  4. Carmen Reinicke, “Bed Bath & Beyond shares crater 21% after meme stock files share offering for undisclosed amount,” CNBC, Aug. 31, 2022, https://www.cnbc.com/2022/08/31/bed-bath-beyond-shares-crater-after-meme-stock-files-share-offering-of-undisclosed-amount.html.
  5. “Stock Price,” Corporate Finance Institute, Jan. 28, 2022, https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/stock-price/.

About the Authors

Devon Delfino

Devon Delfino

Devon Delfino is a writer who’s covered personal finance—including everything from student loans to budgeting to saving for retirement and beyond—for the past six years. Her financial reporting has appeared in publications like the L.A. Times, U.S. News and World Report, Teen Vogue, Masha

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