Will this Viral Phenomenon Stick Around?

Data Suggests that it is running out of gas.

• The word "meme" typically evokes images or videos with humorous, culturally relevant captions that spread like wildfire on social media. Few people expected that this meme concept would find its way into the investing world. So-called meme stocks became a topic of conversation for many investors in January 2021 when a handful of these names rose by astronomical margins, driven by a frenzy of retail investors. Institutional asset managers were forced to wrestle with the question of what to do with a meme stock that could represent a weighting of over 200 basis points in their benchmark!
• So, what defines a meme stock? There is no one concrete way to quantify meme stocks and there will always be some subjectivity in the process. For our evaluation, we considered the following on a monthly frequency:
  • Stocks in the Russell 3000 Index
  • Stock price increase of more than 25% on any given day
  • Short float of >1/8th (12.5%) of shares outstanding
  • Exclusion of IPO/SPAC stocks
  • Investors' apparent disregard for fundamentals and notable social media chatter (Yes, it's a bit subjective!)
• Based on the above criteria, we identified 24 meme stocks in January 2021, when the meme phenomenon took center stage. However, meme stocks accounted for less than 1% of all the names in the Russell 3000 Index. Also, as seen in Exhibit 1 (below), the number of meme stocks we identified (based on our custom definition) decreased from a high of 24 in January to just one in October, indicating that retail investors lost their appetite for these stocks. So, while meme stocks took off in early 2021 few, if any, have recently emerged, suggesting the phenomenon may be transitory.