How to make millions from the meme stock craze: With prices surging, the

Melissa Howard first heard of the American games and electronics retailer GameStop from a friend.

‘She’s really into investing and we were talking about stocks and shares last year when she mentioned this company,’ says Howard, 36.

‘She had held the shares for four years and they had recently fallen, but she was convinced it would bounce back – so I decided to invest.’

Howard opened an account with the trading platform eToro and invested £6,000 in GameStop last September. It’s been a rollercoaster ride ever since.

‘There was one day that my holding went up to £11,500 within a couple of hours. It’s a bit of a bonkers investment,’ says Howard, who runs Bidsmithery, a company that reviews bids and grants for organisations. I know it’s volatile but I’d rather have my money in this than sitting in a savings account that earns nothing.’

GameStop was the original so-called meme stock. These are shares that surge in price, propelled by social media frenzies encouraging investors to flock to buy for quick profits.

Fuelled by FOMO, aka the fear of missing out, meme stocks see their share price moved by sentiment rather than so-called fundamentals, such as the actual business case for the company or how much profit it makes.

Many investment experts have flagged that those buying meme stocks are not really investing but blindly trading to chase profits. Nonetheless, those who have managed to buy low and sell high with meme stocks have made big gains – and they have seen a surge in interest again in recent months.

‘The collision between social media and financial markets was one of the most dramatic trends from the Covid lockdown,’ says Susannah Streeter, head of money and markets at wealth manager Hargreaves Lansdown. ‘Armies of retail investors realised they have the power to influence markets, and this herd-like behaviour has been continuing in spurts ever since.’

The GameStop effect

GameStop hit the headlines when it surged during the Covid pandemic, after investors started discussing the company on social media platforms, particularly the forum Reddit, and joined forces to send its price soaring. Its share price surged from around $4.42 on January 8, 2021 to a trading high of $483 by January 28, 2021.

However, meme stocks are characterised not only by their fast and often unexpected growth, but the inevitable falls that follow. A week after its 2021 peak, GameStop shares had fallen by 81 per cent.

Shares in the firm gained momentum again last year when American ‘finfluencer’ Keith Gill, writing under the pseudonym Roaring Kitty, started posting online after a three-year hiatus. Today shares trade around $22.

That’s just a fraction of the peak price, but the meme stock effect has been so strong that if you had invested £1,000 in GameStop five years ago, you would now have £19,000 – a rise of 1,800 per cent.

Bed, Bath and bankrupt

A host of meme stocks have since sparked a frenzy of interest, making some investors a small fortune, while others have lost everything. Ben Kumar, of wealth manager 7IM, says: ‘A meme stock is a company with terrible share price performance and some sort of narrative about a miracle that could save the business.

‘One extreme example was Blockbuster video in 2021, where shares rallied more than 1,000 per cent in a couple of days, even though the business has no assets or prospects.’

Many of the stocks are also those being ‘shorted’ (where investors effectively bet against a stock and so make money when it falls). Social media can be used to rally investors to buy the shares and drive the price higher, losing the short-sellers money in the process.

AMC Entertainment, a US cinema chain, was another big name in January 2021, when its share price soared 300 per cent.

The phone company Blackberry and the US retailer Bed, Bath and Beyond also found themselves part of the frenzy that year.

Shares in the former are down 25 per cent over five years, while the latter declared bankruptcy in 2023.

So hot was the trend in 2021 that one American investment firm even launched a meme stock exchange-traded fund, tracking the most popular names. It closed after less than two years having lost 47 per cent.

More recent examples include the doughnut-maker Krispy Kreme, which soared 39 per cent in one day in July, and the camera-maker GoPro, which surged 80 per cent on the same day.

‘Investors were mobilised in chat rooms and others joined in, fearful of missing out on gains,’ says Ms Streeter. ‘Firms see big spikes in value,…