Are you familiar with the term “meme?” You might not have an answer unless you’re a 20-something living on the Internet. But you need to know the answer to this question. “Meme stocks” – as the kids call it these days – can cost you a lot of money. Initially, the term meme is a shortening of mimeme, which comes from ancient Greek and means “imitated thing.” British evolutionary biologist Richard Dawkins coined the term as a concept for discussing evolutionary principles. A meme would help spread ideas and cultural phenomena. Pronounced “meem – not “me-me” – today’s term describes an idea, behavior or, style that is spread over the Internet, often via social media platforms and so far mainly for humorous purposes.
What is considered a meme can vary in different Internet communities and is subject to change over time. Originally, memes consisted of a combination of picture signs and a catchphrase. Still, the concept has since become broader and more multifaceted, evolving to include more elaborate structures such as GIFs, videos, or viral sensations.
For the past year or so, shares (English “stocks”) have also been tagged with the prefix meme. Identifying such a meme stock is not as easy as a growth stock or a value stock. Just as it would not make sense to categorize them alongside growth and value stocks, presumably, they won’t be in textbooks for the foreseeable future. Not knowing them, however, could be an expensive omission.
Costly Omissions in Meme Stocks
One characteristic common to all meme stocks is unprofitable and grossly overpriced, yet they quickly have an explosive price performance. The price is driven by commission-free stock trading platforms, such as those offered by financial service providers like Robinhood and online communities like Reddit. And by FOMO, another term that stands for Fear Of Missing Out.
The best-known meme stocks come, how could it be otherwise, from the USA. GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC), and Blackberry (NYSE:BB)have been in hot demand in recent months and have multiplied on the stock market. But did you know that we have meme stocks over in Germany as well? It is the ailing textile retailer Adler Modemärkte (XETRA:ADD.DE). Two weeks ago, the share price was still hovering at 20 cents. Only to quintuple to over one euro within a week. But the came the cold shower.
Recently, it was confirmed that the company is in “advanced negotiations” with a buyer who will make an irrevocable offer to take over the shares of Adler Modemärkte. This is precisely what the meme disciples had speculated on. What they did not foresee, however – presumably because this would require specific basic knowledge of business administration – is that the takeover will involve an initial capital cut in the form of a reduction of Adler Modemärkte AG’s capital stock to zero.
In other words, this will render the company’s shares completely worthless. This also means that nothing will remain of the hype surrounding Adler Modemärkte. Just because certain companies are surrounded by hype does not mean that you can make money with them. On the contrary, meme stocks are worthless stocks where you can only lose. Be careful.