The ‘meme stock’ phenomenon over two years later

• GameStop was the most-bought stock on interactive investor in 2021 among customers aged between 18 and 34.
• The stock fell down the rankings to 19th in 2022 and doesn’t make the top 100 so far in 2023 (to 22 September 2023).

The cinematic world is revisiting the GameStop (NYSE:GME) saga, a remarkable event that unfolded over two years ago, and its lasting impact on the industry.

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Originating from a collective effort by traders on the Reddit forum r/WallStreetBets, this saga triggered an unprecedented surge in the stock price of GameStop, the video game retailer. What set this meteoric rise apart was its occurrence without any substantial changes in the company's fundamental outlook.

The GameStop phenomenon birthed the era of 'meme stocks,' where stock popularity surged, not necessarily due to intrinsic value, but through the influence of social media and online communities.

GameStop was the most-bought stock on interactive investor in 2021 among customers aged between 18 and 34. But the popularity of the stock waned with age, ranking in 25th and 80th positions among the 35-44 and 45-54 cohorts, respectively, falling to 347th position among those aged over 55.

Following a tumultuous year for the video games retailer's share price, the stock fell down the bestsellers ranking table among the 18-34 age group to 19th position in 2022. It doesn’t make the top 100 so far in 2023 (to 22 September 2023). Demand for the stock also followed the downward trend among the older age groups since 2021.

But even at the height of the stock's popularity among our younger investors, findings from ii’s Private Investor Performance Index at the time suggested that on the whole, younger investors tended to have balanced portfolios, with a focus on investment trusts and other collective investments. Subsequent instalments of the index have shown that this continues to be the case.

Myron Jobson, Senior Personal Finance Analyst at Interactive Investor, says: “The conditions that helped send meme stocks to meteoric heights have now diminished. The accidental savers phenomena, where people saw their bank balances benefit from fewer outgoings during the restrictions on movement, gave many an unexpected cash boost which allowed them to speculate on FOMO (fear of missing out) meme stocks. The reverse is now true for many amid the cost-of-living crisis, forcing would-be speculators to be more conservative with their finances to stay on top of rising prices."

“The GameStop saga is symptomatic of the advent of ‘finfluencers’ on social media, reflecting the increased interest in investing – especially among younger people. The challenge for investors is to resist getting caught up in the latest craze. There is some good material on social media to help people on their investment journey, but there is also content that frankly shouldn’t see the light of day. When weighing social media advice, it is important to check the credentials of the source. It is also critical to do your own research before making money decisions.

“There is nothing wrong with investing in single stocks, but the risk of doing so is a lot lower if done within a broader and balanced portfolio. It is important to understand what you are investing in. Funds and investment trusts, which use a professional fund manager to spread your risk globally, are a good place to start.”

The importance of understanding investment risk and avoiding FOMO

Myron Jobson says: "The GameStop saga serves as a ready-made case study, highlighting the dangers of FOMO investing. While some individuals may have experienced fleeting gains by buying and selling during the Reddit-fuelled surge, many others faced substantial losses when the bubble eventually burst. This baptism of fire into the world of investing could discourage newcomers and disrupt their long-term financial plans. Additionally, there's a risk that investors may retreat to cash savings, which may not align with their broader financial goals.

“The key takeaway from the saga is treating investing like a spin at a roulette wheel by betting on highly speculative stocks is not a sustainable strategy to build wealth over the long-term. The reality is that the odds are heavily stacked against those who attempt to time the market.

“The challenge for new investors is to resist the urge to invest in a particular proposition for fear of missing out (FOMO).

“A well-diversified investment portfolio helps to cushion the occasional shocks that come with investing in a single asset class or region. There’s no getting away from the fact that GameStop was the most-bought share among our younger customers at the height of the craze, but we see high levels of portfolio diversification on average and younger customers are particularly strong on collective investments.”