Demystifying Stonks: What Are Meme Stocks and the Secret Behind Stonks Meaning?

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We live in the world of social media and it uses funny images, video clips, or emojis to express emotion digitally. These memes spread widely and rapidaly over the internet as people share them. You may be surprised to know that in this era of social media stocks or shares have memes too. Here we’ll explore in-depth the secret behind the Stonks Meaning, exploring, how they won a reputation, and what they mean for investors and the wider economic markets.

Stonks meaning
(Image Source:Freepik.com/ illustration: wisenewsblog.com)

1. What is the Meaning of Meme Stonks?

Meme stonks are the shares of companies that have gained high popularity due to social media hype. The price of those stocks jumps due to a sudden increase in popularity or awareness in social media.

The WallStreetBet on Reddit is one of the major online platforms responsible for meme stonks rallies. The collective movements of online groups  Reddit, Twitter, and TikTok are able to rapidly increase or decrease the price of meme stonks.

1.2 What is the Difference Between Meme Stonks and Meme Stocks.

There is no difference between the “Meme Stonks” and “Meme Stocks”. When people talk about “meme stocks,” they’re usually referring to stocks of companies that have become famous online because of all the chatter and excitement on social media. Meme Stonks is slang derived from stocks and a kind of funny way of talking about stocks.

Meme Stonks Vs Meme Stonks
(Image Source:Freepik.com)

1.3 What are the Key Characteristics of Meme Stonks?

The Meme stonks have some common characteristics:

  • Hype and sentiments: The popularity of stocks is generally based on the hype and sentiments of the online community.
  • Price disconnection from fundamentals:   The valuation of meme stonks based on sentiments and excitement of social media hype rather than the stock’s fundamental
  •  High volatility:  These stocks are highly volatile because their price rally is based on people’s sentiments (greed and fear)  rather than fundamentals.
  • Short selling:  Due to the high volatility of these stocks traders enjoy shorting more the meme stock rather than regular stocks

✍ Key Highlights :

  • Meme Stonks are those stocks that have gained popularity due to social media hype.
  • Meme stocks have generated their own slang and language that’s used in online forums and social media.
  • Meme ‘Stonks’ and Meme ‘Stocks’ are the same thing. Stonk is slang derived from the stock.
  • Meme Stonks are highly volatile and the valuation of these stocks is based on sentiments of the community members rather than fundamentals.
  • Meme Stonks can give high returns in a short time but are not good for long-term investment.
  • Meme Stonks came into existence in 2020 when GameStop’s stock went viral and grew 1914 % within the first few weeks due to social media’s viral discussion.

2. What Key Role Does Social Media Play for Meme Stonks?

Meme stonks never exist without the existence of social media. The reason behind the popularity of meme stonks is the availability of online platforms and social media which empower a novice investor to discuss, evaluate, and gain knowledge on a stock through social media discussions.

Platforms like Reddit WallStreetBets had been notorious for fuelling huge spikes in meme stock’s price through viral posts and shared interest. The core of the high fluctuation rate of meme stonks is Social media sentiments.

3. How do Meme Stonks Works (Stages of Meme Stonks)?

Meme stonks work in 4 stages.

  • Stage 1: Early adoption:

In the first stage, someone identifies a stock that is undervalued and starts a discussion on the social media platform. Investors start buying stocks in large and the price of the stock starts increasing.

Stages of Stonks
(Image Source:Thebalance.com
  • Stage2: Snow Ball Stage:

In the second stage, the discussion of getting more viral for stock in more social media platforms and an increase in the price and volume of stock seems as proof of its good quality and other investors also start buying the stocks which causes the price to skyrocket.

  • Stage3: FOMO:

In this stage price of the stock has already become overvalued but the social media sentiments have created massive hype everywhere so more investors feel FOMO ( Fear of Missing Out ) and start buying stocks leading to a sudden surge in price.

  • Stage 4: Profit-taking Stage

In this last stage, early investors start selling the shares to make a huge profit after that other investors also start selling the shares due to fear of losing money, and the price of the stock starts to fall.

4. What are the Various Terms Connected to Meme Stonks?

The Meme Stonk community has developed specific terminology used in their posts

  • Apes🦍: It means Members of the meme stock community.
  • To the moon🚀🌙:  It represents The idea that a stock will rise extraordinarily high.
  • YOLO: It means You only live once.
  • Stonks: It is a deliberately misspelled term driven from stock by the meme stonks community.
  • Tendies🔥🍗: It is a short form of chicken tenders and represents profit made in meme stonks.
  • Diamond hands💎🤲  This term shows confidence in holding stock & the price will soon increase despite a heavy loss.
  • Paper hands🧻🤲: It is some kind some disrespectful full slur used for those who fail to maintain the Diamond hands.
  • Hold the line:  It represents the battle cry to encourage the community members to stand along the stock of the company with a diamond hand during the volatility phase.
  • BTFD: An acronym for “buy the f***ing dip. It means staying with a stock for a long time and buying on every dip.
  • ATH: An abbreviation for “All-Time High.”
  • FOMO: “Fear of missing out,is a call or suggestion to buy meme stock during a market rally which means if you miss this opportunity to buy this time, you’ll regret it in the future.

5. What are the Advantages and Disadvantages of Meme Stonks?

Meme stock has some advantages and disadvantages. Let’s discuss one by one.

5.1. Advantages :

  • Meme stonks can give a high return in a short period of time
  • Through these stocks, a newbie can get introduced to the trading process and gain access to the market.
  • Can help to understand public sentiments for a specific stock.
  • It can be used as a tool to understand the workings of the stock market.

5.2. Disadvantages:

  •  Meme stonks are highly volatile.
  • Stock price rally not backed by fundamentals.
  •  Its price movements are unpredictable.
  •  Big Social media houses can manipulate prices by manipulating the sentiments of community users.

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6. What are The Historical Big Moments Related to The Meme Stonks?

6.1. Rapid Rising the Price of GameStop’s Stock:

The history of meme stock starts back to August 2020 when a video posted by the Reddit subreddit, WallStreetBets predicted how the stock price of Gamestop’s could jump from $5 per share to $50 per share.

The video also described how hedge funds have short positions in GameStop’s stock and were waiting for a decline in price before trying to sell them for a profit. GameStop’s stock went viral and grew 1914 % within the first few weeks of the year.

6.2. Starting of Meme Stock ETF :

In March 2021 one asset manager launched a meme stock ETF:  VanEck Vectors Social Sentiment (BUZZ) and it holds position in 75 companies including NovaVax, Amazon, Palantir, and GameStop. The main USP is it simply holds the stocks that are buzzing on social media.

6.3.Top Meme Stonks During Pandemic:

AMC Entertainment (AMC) was struggling before the COVID 19 but its shares unexpectedly boomed to  1,496.02 percent in the five months ending June 1.

7. What are The Examples of King of Stonks?

As per the article of NASDAQ dated 17.08.2023, these Top 8  Stocks are the best-performing meme Stocks and king of Stonks.

Company

Market Cap

Industry

Coinbase Global Inc. (NASDAQ: COIN)

$21.3 billion Finance

Uber (NYSE: UBER)

$92.9 billion

Transportation

Rivian (NASDAQ: RIVN)

$24.9 billion

Automobiles

SoFi (NASDAQ: SOFI)

$9.5 billion

Finance

Carvana (NASDAQ: CVNA)

$9.8 billion

Consumer discretionary

DraftKings (NASDAQ: DKNG)

$25.6 billion

Consumer discretionary

GitLab (NASDAQ: GTLB)

$7.2 billion

Technology

RoundHill Meme ETF (NYSE: MEME) $3.35 million

Thematic ETF

 

8. What is The Difference Between Meme Stonks and Regular Stocks?

Meme stonks and Traditional stocks are the same thing only difference is that the valuation of meme stonks is driven by the online hype/buzz. Whereas the valuation of traditional stocks is more based on other factors like the revenue of a company, fundamentals, and market trends.

9. What is The Regulatory Landscape of The Meme Stonks?

The Regulations for the meme stonks are still evolving. Regulators are inspecting the impact of social media on market volatility and considering measures to ensure fair and transparent trading.

The GameStop case, for instance, precipitated the U.S. Congress to hold hearings on marketplace reforms and retail investor protections.

10. How do Meme Stonks Make an Impact on Financial Markets?

The Meme stonks have shown the ability to disrupt financial markets, causing institutional investors to rethink their strategies Meme stonks have increased the participation of retail investors in the Financial market and have the ability to impact the monopoly of the Institution investors.

According to a Bloomberg report, hedge funds are forced to reassess their risk management approach due to volatility caused by Meme stonks.

11. How to Identify a Good Long-Term Meme Stock?

The identification of meme stonks can be difficult because these stocks are driven by hype and speculation rather than a fundamental analysis of the business. So let’s break down how to identify a promising long-term meme stock in a more conversational and easy-to-understand way:

  • 11.1. Company’s Health:

Start by digging into the company’s health. Look at its financials, like how much money it makes, its profits, and cash flow. A company that’s growing steadily is a better bet for the long run.

  • 11.2. Industry and Market Trends:

Understand the industry the company is in. Is it an industry that’s likely to grow over time? Does the company have something special that makes it stand out in the market?

  • 11.3. Is It Priced Right?:

Check if the stock’s price makes sense. Use numbers like the price-to-earnings ratio, price-to-sales ratio, and price-to-book ratio. See how these compare to other companies in the same field to figure out if the stock might be too expensive.

  • 11.4. Who’s Running the Show?:

Look into the people running the company. Do they know what they’re doing? Check their track record and make sure there aren’t any major red flags.

  • 11.5. Pay attention to the company’s finances?

Before buying a stonk carefully analyze the financials of the company? A strong financial position is essential for stability in the long term.

  • 11.6. Future Growth:

Find out what are the future plans of a company. Are they planning for expansion or coming up with new products? A clear plan for growth is a good sign.

  • 11.7. Think about the competition:

The company must have a competitive advantage. Find out company has something that makes it better than the others? It could be a strong brand, patents, or a big customer base.

  • 11.8. Getting Paid Back:

Does the company pay dividends or buy back its own shares? This shows they’re thinking about their shareholders.

  • 11.9. Thinking Ahead:

Consider how the world might change over time and how that could affect the company. For instance, how might technology or demographic shifts impact what they do?

  • 11.10. Rollercoaster Ride:

Keep in mind that meme stonks tend to go up and down a lot, and they’re often driven by social media hype. Ask yourself if you can handle the ups and downs.

  • 11.11. Short Squeeze:

Find out if a lot of people are betting against the stock (short interest). Sometimes, a surge in buying can force these short sellers to cover their positions, causing the stock to spike.

  • 11.12. Rules and Regulations:

Stay informed about any changes in laws or any legal problems the company might have. These issues can have a big impact on a meme stock.

  • 11.13. Don’t Put All Your Eggs in One Basket:

Remember not to invest all your money in just one meme stock. It is better to diversify your investments across different types of assets to reduce risk.

  • 11.14. Have a Plan:

Decide in advance when you’d sell the stock, both if it goes up and if it goes down. Having a clear exit strategy can help you make rational decisions.

Lastly, keep in mind that meme stonks can be unpredictable. It’s good to discuss with a financial advisor or do thorough research before making any investment decisions. Make sure your investment strategy fits your own financial goals and comfort with risk because meme stonks aren’t right for everyone.

Conclusions:

The world of investing has seen a new level of excitement, volatility, and unpredictability thanks to meme stonks. They demonstrate the ability of online communities to have an impact on conventional financial institutions.

The Influence of the Social Media community has been demonstrated by the Meme stonks. Meme stonks serve as a reminder that the nexus of technology and finance is an area that is important to pay special attention to, regardless of whether you are an investor or an observer.


Disclaimer 📢

“Investing in financial markets carries inherent risks, and it is important to do proper research and consult with a qualified financial advisor before making any investment decisions.”

“The information provided in this blog post is for general informational purposes only and should not be considered as professional financial advice”.


 

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