Back in 2020, “Meme Stocks” became increasingly popular during the pandemic as retail traders online began organizing and retaliating against Wall Street Hedge Funds who had large short positions in various companies.
The face of this movement was Keith “Roaring Kitty” Gill, who became widely followed on WallStreetBets/Subreddit and YouTube with his bullish stance on GameStop (GME).
He, along with his “little guy” retail followers, created buying interest in GME and therefore a massive short squeeze in the stock, forcing hedge funds such as Citron Capital (A 100% GME position loss during the rally) and Melvin Capital (requiring a $3 Billion bailout) to increasingly “buy to close” their short positions, sending the stock snowballing higher, and ultimately suffer significant losses.
It was rumored that “Roaring Kitty” turned his initial $53,000 investment into $48,000,000 at the height of the bullish GME rally. He became the focal point of many conversations both inside and outside of financial circles with an “Eat the Rich” Netflix documentary being made and called on to testify before Congress.
“Roaring Kitty” went dark on social media soon after the fact, but has recently returned to social media and posted on “X” (formerly Twitter). This has created renewed excitement and buying interest for retail traders in GME (and other short interest “Meme-related” stocks such as AMC, DJT, etc.).
While many traders might be excited at the “Meme Stock” return and the potential of quick returns – These stocks also offer significant risks for those who decide to venture into the Meme stock arena:
- Intra-Day Halting / “ Limit Down” Trading: (During GME’s initial run up/down, many brokerages such as RobinHood halted trading and received backlash from retail traders. Similarly, on Monday 5/13/24, GME was halted several times (along with some major online brokerages being down and/or inaccessible for some part of the early morning, additionally complicating the ability to enter/exit GME positions).
- Volatile Intra-Day/Weekly Swings: As can be seen, there are still a lot of “bag holders” who bought back in 2021 and lost a significant amount of money chasing the hype and instant gratification of returns or were wiped out entirely in extreme volatility:
Bottom Line: While the allure and excitement of a quick buck can be tempting, these types of Meme stocks also come with plenty of downside risks that are often overlooked while short-term gains or returns like “Roaring Kitty” are glorified in the media and on social message boards.
As always, know your trading/investing time horizon, risk tolerance, appropriate position size, and never risk more than you can “afford” to lose.
Remember: a meme isn’t a trend.
If you want to follow memes, go for it.
But if you want to follow trends, use a tool like Market Rover to find them for you.
Happy Trading!
