Meme Stocks: How One Subreddit is Taking on Wall Street

Kyle Krajewski
February 2, 2021
Categories

Something fascinating has unfolded on Reddit over the last couple of weeks and it speaks volumes about the power of social media. In order to fully understand what’s going on, we’ll need a bit of background on the stock market.

Going back before the pandemic, GameStop ($GME) had been a struggling chain of retail stores. Their outlook didn’t look great. And when a company’s outlook doesn’t look great, investors on Wall Street can take advantage by “shorting” that stock.

What does “shorting a stock” mean?

When investors short a stock, they’re betting against it. Essentially what they do is borrow that stock at its current value and sell it to other investors at that price. When their prediction is correct and the value of that stock drops, they’ve sold the stock at a higher price than it will cost to cover their borrowing from the original owner. Profit!

Shorting stocks is a fairly common practice at hedge funds like Melvin Capital, which bet heavily against GameStop.

What is a “short squeeze?”

A short squeeze is what happened with GameStop. Think of it as a perfect storm of factors that cause the price of that stock to surge – contrary to the predictions of the hedge funds that shorted it.

When demand for a stock is increased – in this case by an army of individual investors with Robinhood accounts on Reddit – the price goes up. Short sellers have to buy the stock at the higher price to cover their losses. Long buyers are buying the stock for future gains. Everyone is buying and no one is selling.

It’s then, as they say on r/wallstreetbets, that we go “TO THE F**KING MOON! ”

What is r/wallstreetbets?

Reddit is “a network of communities based on people’s interests.” These communities are called “subreddits,” which are basically discussion forums. With over 2 million subreddits, there is one for just about anything you can imagine.

r/wallstreetbets is self-described as “Like 4chan with a Bloomberg terminal.” It’s a politically-incorrect space where dank memes meet aggressive and absurd stock trading theories and discussion. A common theme includes treating the stock market like a casino and finding ways to win big – fast. Hence the name r/wallstreetbets. The subreddit currently has over 7 million members or, as they call themselves, degenerates.

A Quick Guide to r/wallstreetbets Vocabulary

In order to understand the nature of this community and the concept of stocks as memes, it’s important to understand some of the vocabulary frequented in r/wallstreetbets. A lot of this vocabulary is just a series of emojis with memetic value.

: The rocket ship emoji is short for “TO THE MOON!” This implies that an investment is soon to take off/skyrocket.

: This set of emojis is otherwise referred to as “diamond hands.” A person with diamond hands is prepared to be patient and hold onto their stocks until they see a large profit.

: The opposite of diamond hands, this set of emojis refers to “paper hands.” A person with paper hands is too eager or nervous and sells their stock too early – before they see max profits. Those with paper hands are commonly shamed in r/wallstreetbets.

Tendies : Short for chicken tenders, tendies are profits/gains. Because what else would a bunch of self-proclaimed degenerate stock market gamblers do with their earnings other than feast on tendies? When profits are imminent, “soon may the Tendieman come.”

We like the stock: This commonly-used phrase is a meme for a currently trending stock. People who use this are bullish on a specific stock and are part of “Bull Gang.”

Apes strong together: In the battle of the common man against the Wall Street elite, the common man is referred to as “ape.” Apes must stick together in targeting stocks, holding their shares, and going to the moon.

Hold the line: Otherwise a phrase used in battle, this phrase is a r/wallstreetbets warcry that urges investors to be strong and hold onto their shares – even if it goes down in value. Don’t get paper hands!

It’s treason then from wallstreetbets

“I am the one who holds.”

YOLO: Short for “you only live once,” the term YOLO was popularized by recording artist Drake nearly a decade ago. The term has found new life in r/wallstreetbets as a verb, meaning to take a wild financial risk. A person YOLOs their entire paycheck on GameStop stock.

u/DeepF*ckingValue: Recently revealed to be YouTuber “Roaring Kitty,” Keith Gill – known by his Reddit profile u/DeepF*ckingValue – is the newly-minted kind of the subreddit and the person who predicted and led the GameStop short squeeze. Gill regularly posts screenshots of his gains, which reveal that he YOLOed hundred of thousands of dollars into $GME months ago, which – last week – turned into just under $50 million.

Stonks : This is an intentional misspelling of “stocks.” This term is used ironically because what it really boils down to is that all of this is just one big meme. The stonks culture of r/wallstreetbets is a meme and the stonks being targeted by the 7-million member subreddit for short squeezes are memes.

What in the world is a “meme stock?”

One month in and you can check “stocks are now memes” off on your 2021 bingo card. In hindsight, it was really only a matter of time before internet culture met and targeted Wall Street.

A meme is defined as “an element of a culture or system of behavior that may be considered to be passed from one individual to another.” We typically think of them as the funny and relatable images like Cozy Bernie or Doge that we see on the internet and share with our friends.

But as a concept, memes transcend that. Memes can be intangible ideas or courses of action that explode and spread like wildfire through a culture or subculture. In this case, that idea is the conversation around and targeting of these highly-volatile stocks by a new, young culture of investors on Reddit.

GameStop isn’t the only meme stock out there, nor is it the first. Companies like AMC, Nokia, and Blackberry are all being targeted.

And it’s not even just in stocks that we’re seeing this trend.

Dogecoin – yes, inspired by THAT Doge – is now the most-mentioned cryptocurrency EVER on Twitter. It literally has a meme in its name and logo and could potentially end up making some people very rich. Heck, even the richest man in the world has tweeted about it multiple times.

So what happens next? Who knows! It will be an interesting situation to monitor in the coming weeks.

*Maybe your Dogecoin investment will take you to the moon!!!!

*FOR LEGAL PURPOSES, THIS IS NOT FINANCIAL ADVICE!

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