What Are the Dangers of the Meme Stocks?

If you’ve been following closely or from afar any recent meme stock movement, you must be wondering if you should also invest in one yourself? Well, the stories are certainly compelling, as some people became rich with Gamestop GME stock. That said, you should know what the new meme stock movements mean for all investors and the companies involved.

How Did the First Meme Stock Start?

This all started in the subreddit called Wallstreetbets, where investors decided to go on their favorite online trading platform and buy 1000s of GME shares when GameStop was about to close its doors for good. This caused a rather interesting discovery; many Hedgies were actually shorting GME, and the sudden rise in value forced them to cover their position, launching the stock value even higher during a glorious short squeeze moment!

There were maybe a couple of other meme stock stories before that one, but the GME (GameStop Corp.) stock movement is certainly the most publicized stock event in recent years. As a matter of fact, many new retail traders who had no idea about how the stock market works started trading because of this movement.

What Are the Pros and Cons of the Meme Stock Movements?

Of course, where there is money to be made, there is attraction. At the sight of all the success stories and the action, many people gained a strong interest in the stock market and the different cryptocurrencies.

The main positive effect of a meme stock movement is that it helps the company that’s being targeted. Indeed, GameStop and AMC were both on the brink of extinction before they got memed into the stratosphere. AMC recently announced that they were able to finish paying all of their debts.

However, a downside is that many people who don’t know anything about the stock market started investing big amounts of money. Obviously, not everybody wins in these kinds of stories and it’s easy to think you are going to make big money and then get anxious from seeing red all of a sudden.

How to Do Proper Due Diligence Before Investing in a Meme Stock?

Before jumping in into any stock investment, you should do your DD (or Due Diligence). One of the best ways to do a proper DD is to go on the company’s official website you want to invest in and find the investor relations page. There, you should be able to access their annual report and understand how much debt they’re in, where the money is going, etc.

Hopefully, this sheds some light on the meme stock origin. After reading this, at least you’ll know what a meme stock is and if buying a few shares to be part of the Apes movement is something that talks to you.