Are Meme Stocks Here to Stay?

We speak with Rishi Khanna, Chief Executive Officer at Stocktwits, about whether the meme stock craze will continue and why retail investors are attracted to meme stocks. Khanna also talks about the importance of community in investing and how retail investors should view the down market.  

It is estimated that retail traders accounted for one-third of all U.S. stock trading in the past year – what are some reasons behind this trend?

One reason is the influence of social platforms on the retail investing community. The meme-stock mania opened the door to on-ramp the next generation of investors to a wealth-creation engine. They have historically been slower to adopt. Today, social gives retail investors greater access to information so they can join in on the discourse, ask questions and act on this knowledge. Stocktwits is at the center of this surge: in 2021 the platform’s user base grew by 50% to 6M+ users.

Is the meme stock craze still a thing? Do you think the momentum will return next year? Is it here to stay?

The meme stock craze marked a pivotal change: the realization that individual investors coming together as a community has a lasting impact that can’t be ignored. Of course, like all things in the markets, there is an ebb and flow. The craze is constantly changing. However, despite market volatility, if retail wants to mobilize and something interesting pops up, meme stocks will still be in play.

The interesting part of meme stock mania is that it boils down to a few aspects: an increase in market participation, an interesting company story and a catalyst like short interest. If a certain stock has all of these aspects and captures the interests of social media users, it has the potential to become a meme stock. 

Why do you think retail investors are attracted to meme stocks? 

For many retail investors, the attractiveness of meme stocks has a great deal to do with the potential to win big if they play their cards right (as well as an element of sticking it to “the man”).

Meme stocks gamify the stock market, and winning involves strategy, research and selling at just the right time. People have always been fascinated with lottery tickets and other gamified activities that create an opportunity to win big. While you could lose a lot, the adrenaline of trying to predict the next big meme stock can be exciting and that's why many retail investors are captivated.

It's essential to recognize the intention here is not a long-term growth strategy. It's short-term; therefore, you must be quick, in-tune, and constantly up to date on the latest things happening.

How should retail investors view the down market? How should they position their portfolios? 

For active traders, volatility is an opportunity and that’s true in both up and down markets. This is where being actively plugged into a community like Stocktwits is a critical tool. For longer-term investors, the down market is an opportunity to learn and build their investing identities. It's all about using this market as a chance to reset, think about your financial goals and risk tolerance, and then take advantage to find the investments that may work for you. This is a very good time to learn for the long term. 

What is the importance of social networks for investors and traders? 

Social networks like Stocktwits are critical to getting the full picture when researching a topic or stock and receiving it in a timely way. There are so many smart users in our community with a wide range of perspectives that others can tap into and learn from. In traditional media, you’ll generally get info from a singular lens.

In addition to that, given how fast things move today, harnessing the power of the community enables investors and traders to instantly access timely indicators like trending tickers before the news cycle catches up. Information is power and if you’re solely relying on traditional media, you are at a disadvantage.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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