Meme Shares – What Are They?

There are times when I feel like a dinosaur. When my teenage boys tell me things at the table that I don’t understand… for example when it comes to ‘memes’. When I just saw an article about ‘meme shares’, I immediately felt the question: what are they?

What are memes?

I know memes from my boys as pictures with a short text in large letters. Which they find very funny… How else can you explain that? I searched and found this:

The term Meme was coined by Richard Dawkins. In his book The selfish genes (the selfish gene on page 192) is the meaning. He wanted a word that means “an idea, behavior or style that is adopted from person to person within a culture.” He calls it a Meme as a corruption of the Greek Mimeme, which means “something that is imitated”.

Rijnmond.nl (source)

Wikipedia indicates that ‘meme’ is a term from ‘memetics’ – I had never heard of it either. A little more explanation:

an idea or system of ideas such as a religion or ideology, or a technique or other human invention or practice that spreads among information carriers (so far mainly human brains and social networks), and is also described as an infectious information pattern. A meme is a self-replicating unit of cultural evolution, just as a gene is the unit of biological evolution.

Wikipedia (source)

My boys’ memes are a bit more specific: Internet memes: a term used to describe a concept that spreads from person to person at a rapid rate through the Internet.

Meme shares are going viral online

OK, we know then. But what are meme shares then? The easiest explanation is that it is stocks that go viral online. Like the internet memes, only stocks instead of pictures. And you have to pay for shares – that’s a bit different than a funny picture with text.

GameStop is the example

I guess I would call it hype stock. Remember – those GameStop shares from last year? That’s a prototype example of a meme share. A hype that mainly attracted many new, young investors. Finfluencers play a major role in this. Monningstar.nl published an interesting article last Monday about the state of affairs surrounding GameStop. Author Rentsje de Gruyter explains in great detail what happens with such a meme share:

You buy meme shares because investors show off on social media the sky-high returns they have achieved on a share in no time. They infect others. That is a purely psychological effect: FOMO, or Fear of Missing Out; you don’t want to miss the boat and hoppa, you can also quickly buy the share yourself via an investment app on your phone.

Buying shares through messages from others

The shares are not bought because investors have become engrossed in the company. They have not looked at figures or performance, have no idea of turnover, profit, debts and prospects. They have been induced to buy by the posts of others. If they’re lucky, they’ll be in time to take another chunk of price gains – if they’re unlucky, they’ll lose a lot of money on those meme stocks.

FOMO: fear of missing out

There it is again: that FOMO. I wrote about it the day before yesterday in my blog about NFTs, yesterday it was discussed in a workshop I participated in and now with meme stocks. FOMO, Fear Of Missing Out. It makes you feel like you have to do things you don’t necessarily want to. You may think you really want it yourself, but the urge doesn’t come from yourself – it comes from outside. You’re afraid of missing out, that’s why you participate.

Take advantage of low mortgage rates

That’s how it works in many financial areas. Precisely because money matters are so intangible, decisions are quickly influenced by input from others. It certainly also plays a role in many people’s choice to refinance their mortgage: you don’t want to miss out on the benefit of those historically low mortgage rates.

Less susceptible through knowledge and patience

If you understand a subject yourself, really dive into the background and make sure you understand it – then I think you’re less susceptible to that fear. The instacart stocks ipo is found online. I cannot escape the impression that young people in particular do not have that patience and are therefore much more concerned with those hype investments.

Panic selling when prices fall

Could it be that the recent stock market collapse has something to do with that? I saw a headline about this on FD.nl ‘New investors caused panic selling’ – and there could very well be something in that. They are talking about the ‘new corona investors, often young and inexperienced’. They tend to sell quickly when the price falls. If that happens in large numbers this has an amplifying effect: the price falls even faster.

Buying Meme Stocks: Gambling More Than Investing

Back to the meme stocks: that’s exactly what happens with that too. People buy them based on social media posts – a lot of people do, so the price is going up fast, way too fast. As soon as the correction starts and the price starts to fall, that is the start of a deep fall. It is more gambling than serious investing. There are people who make big profits with it, while many others lose money with it.