When GameStop (GME) skyrocketed to a shocking $347.52 on January 27, 2021, most investors (and casual observers of the stock market) were astounded. But people who had been paying attention weren’t surprised at all. GME was clearly a “meme stock,” aka a stock that was trending on social media, had extremely high interest from short investors (investors who sell high and buy back low), and was trending on Reddit.
In the recent past, AMC, GME, and BB (Blackberry) have seen a share price rally of 133.8%, 38.3%, and 33.9%, respectively, thanks to the hype on social media. Over the last year alone, AMC shares have risen more than 2,900%. These are hard numbers to ignore for active investors despite the extreme risk associated with meme stocks.
While there are many potential upsides to meme stocks, there is a lot of risk and research involved in finding “hot” stocks. To have a chance at success with short-term meme stock investments, an investor must be exceptionally social media savvy and active on several platforms. Not only do they need to identify which potential stocks could achieve “meme” status, but they must do so very quickly to have a shot at buying before the stock takes off. Even being just a few hours late to the table could mean a total loss.
On August 26, 2021, Roundhill Meme ETF - an exchange-traded fund that features trending stocks on social media, applied with the SEC for regulatory approval. The ETF will make it easier for investors to identify and invest in meme stocks without spending hours on social media. According to the filing, Roundhill Meme ETF notes that it will invest over 80% of its assets in meme stocks. Roundhill defines meme stocks as equity securities that A) display a combination of high social media activity and B) have a lot of shorting interest. If the SEC gives the fund a greenlight to Roundhill Meme ETF, it will launch on November 21, 2021.
Other meme stock ETFs that have already launched include the Dave Portnoy-backed VanEck Vectors Social Sentiment ETF (BUZZ.P) (which invests in stocks that are trending on social media) and FOMO (FOMO.Z) (which invests in meme stocks, special acquisition companies, and cryptocurrencies). Both launched around March of 2021 and have gained 10% and 2.5%, respectively.
Meme ETFs allow investors to get involved in popular stocks since they take the leg work from researching and identifying meme stocks for interested short-term investors. The funds will offer investors a way to diversify their meme stocks and reduce the volatility in a highly volatile short-term market. There is no way to eliminate risk - especially with something as subjective and unpredictable as a meme stock - but meme ETFs spread out the risk among various potential winners rather than investing everything in one or two high-risk stocks.
As for what this means for CERES? CEO Greg Anderson says, “Our intention was never to become a meme stock - but you certainly cannot underestimate the power of social media and socially influenced drivers within the securities arena. We are harnessing two “wild west” concepts of blockchain and cannabis, so we recognize that we could be a potentially attractive investment for meme stock investors.” He goes on to say,” We think that combining our underlying business model with the opportunity to be an attractive target as a meme stock could get pretty interesting.”
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