MEME STOCKS: What makes them valuable?
HUMAN life is lived increasingly online and the world is getting less meaningful and more isolating.
So, people are ascribing a lot of value and meaning to their online interactions.
Every week or so, there was some new meme stock and set of retail enthusiasms. A few stuck around, like AMC.
Many people go around trading stocks based on their expectations about the underlying companies’ future cash flows.
Modern life being what it is, if you ascribe value to something, you can put a price on it and trade it on an exchange, and maybe have a nice little bubble.
AMC and GameStop were two of the best-performing stocks in 2021. If you have invested $1,000 In Dogecoin, AMC and Gamestop on Jan 1, how much would you have by now?
From January through May, shares of AMC Entertainment were up 1,132% and shares of GameStop were up 1,078%.
Do you know that a $1,000 investment in both of these stocks would have been a strong performer for an investor.
Investing $1,000 in AMC Entertainment would have bought around 472 shares of the company before Jan 1. The $1,000 investment was worth $12,328.64 at the end of May.
Investing $1,000 in GameStop would have bought around 53 shares of the company before Jan.1. The $1,000 investment was worth $11,766.00 at the end of May.
DOGECOIN AND BITCOIN
One of the most talked-about cryptocurrencies in 2021 has been Dogecoin. The cryptocurrency has been a strong performer for those who got in before the start of 2021.
Dogecoin hit all-time highs of $0.7376 in May before falling to monthly lows of $0.2183. Investors who bought Dogecoin on or before Jan 1 have done quite well.
A $1,000 investment in Dogecoin could have bought 213,584 coins on Jan 1. That investment was worth $70,482.72 at the end of May.
Compare the $1,000 investment in Dogecoin to the same one in Bitcoin that was worth $1,287.24 at the end of May.
WHAT MAKE THESE STOCKS VALUABLE
In the olden days, the way stocks worked was that you gave some money to a corporation, which used the money to build a railroad and paid you a dividend as your reward.
If times were good, the dividend would go up, and if times were bad, it would get cut, but if you bought the blue-chip stocks of good steam railroads, you expected to get your dividend.
Then some companies thought, instead of paying this money out to shareholders, we could invest it in laying more new track and expanding our railroad empire, which will in the future allow us to pay even greater dividends to shareholders.
But it worked very well to the point that now it would be quite weird for a fast-growing tech company to pay a dividend when it went public.
In theory that eventually ends: The corporation gets really big, it has more money than it can spend to keep growing, so it starts to give the money back to shareholders through dividends or stock buybacks.
WHAT MAKES THEM VALUABLE?
GOLD
What makes gold valuable? It has some industrial uses, but the main reason is that it’s shiny and pretty to look at and our ancient ancestors wanted it. They wanted it for long enough that “gold is a thing that everyone wants” became an accepted fact.
U.S. DOLLAR
What makes the U.S. dollar valuable? The main reason is that it’s the easiest way to buy things in most of the U.S. It’s a social fact: A dollar will buy about a dollar’s worth of goods and services, because everyone else will accept it for goods and services, because they trust that they can use it to buy about a dollar’s worth of goods and services, etc.
BITCOIN
What makes Bitcoin valuable? It’s a cool technology, but the main reason is that a lot of people on the internet have agreed that it’s valuable. Unlike with gold and dollars, that consensus emerged from scratch in the past 10 years or so. But it did happen; “it’s a thing that a lot of people want” seems to be about as true of Bitcoin as it is of gold.
DOGECOIN
What makes Dogecoin valuable? The answer is roughly the same as with Bitcoin, except that the people who are into it are kidding.
They’re buying Dogecoin because there are a lot of fun online communities and memes about Dogecoin. That sense of community is valuable. It’s worth something like $30 billion, the market value of all the Dogecoins in circulation.
NFT
What makes nonfungible tokens (NFTs)—often limited editions of weird pixelated images that you can buy with cryptocurrency — valuable?
It’s the same story: It’s a way to represent the value of membership and status in a particular sort of online community.
Owning Crypto Badger #6,942 signifies a kind of belonging; paying $3,000 for it proves that this kind of belonging is valuable.
GAMESTOP
What makes GameStop stock valuable? In particular, what made GameStop briefly worth as much as $483 in the last week of January, after it started the year at $18.84? There’s no dividend.
GameStop had some attractive characteristics to become a meme stock: video game nostalgia; high short interest; a tech-savvy activist investor, Ryan Cohen (now the board chair), pushing big changes to the business.
It was, in many ways, easy to love. But the essentially social and online process of falling in love with it—the process by which it became a meme—could be repeated over and over again.
And so it was, mostly on a smaller scale and a shorter timeline.